What is Cash Flow Return on Investment?

The cash flow return on investment (CFROI) measures a company's cash return on invested assets. It is determined by dividing a company's gross cash flow by its gross investment.

How Does Cash Flow Return on Investment Work?

A company invests in capital with the intention of expanding its business and increasing profitability. Cash flow return on investment measures a company's cash flow during a period of time in relation to the total value of the investments it has made.

To illustrate, suppose a fictional company ABC Corp has invested in a total of $100 in assets. Between 1 January 2008 and 30 June 2008, the company had a positive gross cash flow of $1000. The CFROI would be calculated in the following manner:

For analytical purposes, companies will designate a benchmark rate that will help determine whether or not its CFROI is satisfactory.

Why Does Cash Flow Return on Investment Matter?

Cash flow return on investment measures dollar-for-dollar a company's cash flow from invested capital. Therefore, all things being equal, it is also indicates the value of a company's capital investments in terms of how effectively those investments produce and generate profit relative to the costs they incur.

Ask an Expert about Cash Flow Return on Investment

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Cash Flow Return on Investment.

Be the first to ask a question

If you have a question about Cash Flow Return on Investment, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

Verified Content You Can Trust
verified   Certified Expertsverified   5,000+ Research Pagesverified   5+ Million Users