Company Valuation Under IFRS : Interpreting and Forecasting ...

Chapter Three – What do we mean by ‘return’?
5. Net cash flow (new assets)
400.0
300.0
200.0
100.0
-
(100.0)
(200.0)
(300.0)
(400.0)
(500.0)
Year
6. Net cash flow (all assets)
1,600.0
1,400.0
1,200.0
1,000.0
800.0
600.0
400.0
200.0
-
Year
Chart 1 simply shows what happens to CFROI over time. It is assumed to fade over
8 years into line with the company’s WACC, after which it remains at that level.
Chart 2 shows the cash flows that are projected from the existing assets. They
have a remaining life of 13 years, and the large amount for year 13 reflects
release of the company’s existing working capital. Annual cash flows fall over
the 13 years because the firm’s CFROI is fading towards its WACC.
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