CFROI (Cash Flow Return On Investment) | Formula | Calculation

In this video on CFROI (Cash Flow Return On Investment), here we discuss CFROI formula and its interpretation along with practical examples.

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 𝐑𝐞𝐭𝐮𝐫𝐧 𝐎𝐧 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 (𝐂𝐅𝐑𝐎𝐈)?
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CFROI (Cash Flow Return on Investment) is the firm's Internal Rate of Return (IRR) as compared to the hurdle rate to see if the product/investment is doing well.

𝐂𝐅𝐑𝐎𝐈 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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CFROI Formula = Operating Cash Flow (OCF) / Capital Employed

𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 (𝐎𝐂𝐅)
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Operating cash flow is the amount of cash received after payment of the firm's operating expenses.

𝐎𝐂𝐅 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Operating Cash Flow (OCF) = Net Income + Non-Cash Expenses + Changes in Working Capital

𝐂𝐅𝐑𝐎𝐈 (𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 𝐑𝐞𝐭𝐮𝐫𝐧 𝐎𝐧 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭) 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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Given,

Operating Cash Flow (2018) = $13.94 billion
Capital Employed (2018) = $17.47 billion

By using above formula we get,

= $13.94 / $17.47 = 79.7%

To know more about 𝐂𝐅𝐑𝐎𝐈 (𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 𝐑𝐞𝐭𝐮𝐫𝐧 𝐎𝐧 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭), you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:-

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