What is the cash-flow return on investment (CFROI)?

In financial markets, the cash-flow return on investment is a way of valuing stocks that is based on the assumption that the market sets prices based on cash flow, rather than earnings or any other factor. In business, it is a measure of the performance of a piece of capital investment.

Where have you heard about the cash-flow return on investment (CFROI)?

As an investor, you may have read about the cash-flow return on investment (CFROI) in investment guides or have heard about it from your financial adviser. The business definition may have appeared in the reports of companies in which you hold shares.

What you need to know about the cash-flow return on investment (CFROI)?

There are two quite distinct definitions for the CFROI. In financial markets, it is calculated by dividing a company's cash flow by the market value of its shares. The notion underlying this is far from universally agreed, with many arguing that it is assets, or profits or other factors, rather than cash flow, that decides the market value of a company's shares. The business definition is more widely accepted and divides the cash flow from a corporate investment with the cost of the investment to see whether an acceptable return is being earned.