Abstract
The cash flow return on investment (CFROI) metric is a real, cross-sectional internal rate of return calculated at a point in time from the aggregate data of a firm. A map of the complete CFROI valuation model reveals the model's major components and serves as a helpful device for identifying and locating the major determinants of the value of firms. Valuation based on discounted cash flow (DCF) is straightforward when it is applied to bonds. Investors forecast a Net Cash Receipt (NCR) stream that is composed of the bond's interest and principal payments. Analyzing a conventional statement of sources and uses of funds, with a focus on net working capital, facilitates identification of the NCR from both the firm's perspective and from the capital suppliers' perspective. Capital suppliers, both debt holders and equity owners, have claims on the firm. For a nonfinancial firm, the standard CFROI perspective is to value the entire firm. The total-firm warranted value less the debt provides the warranted equity value.
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