Financial Education

Cash Flow Return on Investment (CFROI) is an internal rate of return (IRR) type metric measuring the return expected to be generated by a firm’s existing assets throughout their useful lives. CFROI can be calculated in five steps:

• compute the average life of assets by dividing gross assets by depreciation expense
• compute gross cash flow by adjusting net income for non-cash charges, financing expenses, operating lease payments and equity reserve accounts
• compute the gross investment as gross plant and equipment adjusted for reserves, capitalized expenses, restructuring charges, amortization and the present value of operating leases
• compute the value of any assets that will not depreciate (which will represent the future value)
• solve for IRR (or CFROI)

For more information, see all articles on: Accounting, Adjusting Reported Financial Statements, Valuation

See also:

Free Cash Flow

Computing Free Cash Flow to the Firm from Net Income

Computing Free Cash Flow to the Firm from the Statement of Cash Flows

Constant Growth Free Cash Flow to the Firm Valuation Model

Calculating Returns in a Portfolio