Cash Flow Return on Investment

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Cash Flow Return on Investment (CFROI), originally developed by HOLT Value Associates (since Jan 2002 CFSB Holt, Chicago), is an Economic Profit (Cash-Flow) based corporate performance/valuation framework, mainly used by portfolio managers and corporations.

CFROI calculation

CFROI is normally calculated on an annual basis, and it is compared to an inflation-adjusted cost of capital to determine whether a corporation has earned returns superior to its costs of capital. Using Cash Flow Return on Investment, you can compare companies with disparate asset compositions, across borders and time.

An advantage of CFROI is that it ties performance measurement to the factor that investors appreciate highly: the ability of a corporation to generate cash flow.

Also CFROI is inflation-adjusted.

The calculation of CFROI (formula) is somewhat complex, and is too big to fit here.

CFROI explained

Cash Flow Return on Investment (CFROI) can be calculated at the level of a Strategic Business Unit, and it can also be used for private held companies.

It is an approximation of the average real internal rate of return earned by a firm on all its operating assets. The inflation-adjusted CFROI method, is calculated from a recurring stream of after-tax cash flows generated by a company's growing base of depreciating and nondepreciating assets. Over time, CFROI fades, or regresses, to the long-term corporate average. By applying the ROI to the total assets, a net cash receipt forecast can be calculated. This forecast is discounted back to the present to arrive at a current value for a company.

CFSB Holt maintains a CFROI database of over 18.000 companies, consisting of 20 year historical data for American companies and 10 year historical data for non American companies.

Book: Bartley J. Madden - CFROI Valuation

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Forum discussions about CFROI Valuation. Below you can ask a question about this topic, share your experiences, report a new development, or explain something.

🔥 CFROI Considerations
Cash flow is dynamic for an organization and can be different based on marketing and sales and does not give a correct picture. For example: if the company has announced a special discount for preboo...
topic CFROI for Private Company
Question: I'm using the Return Driven Strategy framework (Frigo & Litman) to develop strategy for a small, private company ($10M sales). My question is, how do I effectively use CFROI with or without...
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12 Portfolio Ratios

Compare 12 ratios
Paper by Nicola Nicoletti aims at evaluating the profitability of several portfolio strategies based on fundamental rati...

CFROI Calculation

Calculating CFROI
This program allows you to estimate the current CFROI for a firm. By Aswath Damodaran....

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Compare with Cash Flow Return on Investment: Market Value Added  |  Economic Value Added  |  Cash Flow from Operations  |  Economic Margin  |  Dividend Payout Ratio  |  Relative Value of Growth  |  PEG Ratio  |  EBIT  |  EBITDA  |  Cash Ratio  |  Current Ratio  |  Return on Equity  |  Fair Value  |  TSR

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