Cash flow return on investment

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Cash flow return on investment is a valuation model that assumes the stock market sets prices based on cash flow, not on corporate performance and earnings.

CFROI = Cash Flow / Maket Capitalization

For the corporation, it is essentially internal rate of return (IRR). CFROI is compared to a hurdle rate to determine if investment/product is performing adequately. The hurdle rate is the total cost of capital for the corporation calculated by a mix of cost of debt financing plus investors `expected return on equity investments. The CFROI must exceed the hurdle rate to satisfy both the debt financing and the investors expected return.

CFROI = Gross Cash Flow / Gross Investment

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