CFROI · Cash flow return on investment (HOLT)
Reconstructs accounting returns into an inflation-adjusted internal rate of return, assumes it fades toward the economy-wide long-run average, and discounts the resulting economic profit to a warranted value — reducing distortion from depreciation policy and asset age.
- Guide level
- Practical
- Output
- Intrinsic value
Core formula
Solve CFROI from gross investment = Σ gross cash flow/(1+CFROI)^t + non-depreciating assets/(1+CFROI)^life; fade CFROI toward a long-run average and discount the resulting economic profitHow to interpret it
Reconstructs accounting returns into an inflation-adjusted internal rate of return, assumes it fades toward the economy-wide long-run average, and discounts the resulting economic profit to a warranted value — reducing distortion from depreciation policy and asset age.
The output should be read as a scenario or decision aid, not as a guaranteed price target. Compare it with at least one method based on different economic assumptions.
Practical workflow
- Normalize the latest public financial and operating data.
- Choose assumptions that match the company's economics and accounting structure.
- Calculate conservative, base and optimistic cases where the method permits.
- Compare the result with market pricing and an independent valuation method.
- Document the assumptions that drive the largest changes in value.
Key limitation
This is a simplified approximation without full inflation-layer reconstruction; asset life and gross investment inputs are themselves estimates.
How Stockinsky uses it
Stockinsky uses this framework only when the company type and available data support it. Professional valuations expose assumptions, sources and warnings instead of presenting false precision.