Cash Flow Return on Investment (CFROI)

Summaries

N – average life of firm’s asset (gross depreciable asset/ depreciation expense)

PMT – gross cash flow (NI + D + I + deferred tax + rental expense) *** i.e. NI + financial expenses and non-cash operating expense)

PV – gross cash investment = gross PP&E + PV of operating lease + PV of goodwill amortization

FV –sum of non-depreciable items

Solve for I/Y

If CFROI > WACC => generating economic profits

Graph: EVA spread vs market value to replacement cost of invested capital (~ P/B)

If above the best fit curve: undervalued

If below the best fit curve: over-valued