Cash Flow Return on Investment (CFROI)

CFROI is a company's internal rate of return (IRR) on existing investments, based on real (rather than nominal) cash flows. By comparing CFROI to the company's cost of capital, the company can see whether its assets are creating or destroying value. Here we present the CFROI formula and give you a sample calculation. We also explore how CFROI and IRR are linked, and see how the relationship between CFOI and the cost of capital influences wealth creation and destruction.