What is the return on investment in cash flows?

Also known as CFROI, the return on investment in cash flows is a type of valuation model that works with understanding that the price of the investment is not determined on the basis of the performance of an entity that issued a certainty but on the current state of cash flows. The idea is that this return must exceed the internal obstacle to the company to make the price of security for the issuer attractive to both investors and lucrative. As with most types of investment theories, Cfroi has a number of supporters, as well as others who do not consider this particular financial theory to be the most experienced strategy in terms of investment decisions.

In order to understand how the concept of return on money flows works for investment, it is necessary to define what is an obstacle. This is simply the amount of revenue that must be exceeded or inverted to justify the price of goods or services. Since this concerns investment, the obstacle rate is the minimum amount of return that the investor will consider to be fair, afterwhere he decides to get security. For business, the rate defines the smallest amount of profit, which must be achieved from the sale of securities in order to pay off the effort.

From this point of view, the return on investment in cash flows is essentially an internal return for a company that issues safety. If this internal return rate is higher than the obstacle rate, this means that the return exceeds the cost of financing the debt that participates in the issue of shares, and the stock price is to an acceptable level for the issuer. Assuming that the return to investors remains at a permanently satisfactory level, there will be no problem to move these stocks on the stock exchange.

While many people find that the return on investment in cash flows is logical can be used to explain how the stock market in some cases set prices, others feel that strategy identifies only one set of factors that determine the pricethat the market will carry. For investors who feel, this is the case, there is an obvious need to consider factors that are out of control of the issuer. For example, the movement of shares offered by competing companies would be important in determining the current price of the security and general state of the economy. Fans of the return on investment approach of monetary flows point out that these external factors are counted according to their impact on the internal return rate that the publisher is experiencing, which means that they are actually considered to front -nd, rather as part of a concurrent set of relevant circumstances.