Cash flow return on investment (CFROI) is a way of valuing companies based on cash flow, not on corporate performance and earnings.

CFROI is a product of our financial modelling. We believe that over time a company's CFROI will revert to its cost of capital.
 
That means that where companies have delivered returns above the average, we expect to see those returns fade towards the average over time. We determine this rate of fade via a combination of extensive quantitative back testing, information gleaned from meetings with management and other qualitative research.
 
For example, companies operating in industries with high barriers to entry will have lower fade rates than those in more competitive and cyclical markets.