Cash flow return on assets (CFROA) in Excel

Cash flow return on assets (CFROA) is a measure of how efficiently a company uses its assets to generate cash flow from its operations. It is calculated by dividing the operating cash flow by the average total assets. Operating cash flow is the amount of cash generated by a company’s normal business activities, excluding capital expenditures, dividends, and taxes. Average total assets is the average of the beginning and ending total assets for a given period.

The formula for CFROA in Excel is:

=OCF / AVERAGE(Beginning Assets, Ending Assets)

where OCF is the operating cash flow, Beginning Assets is the total assets at the start of the period, and Ending Assets is the total assets at the end of the period.

To illustrate how to calculate CFROA in Excel, let us use a hypothetical scenario. Suppose a company has the following data for the year 2023:

To calculate the CFROA, we can enter the following formula in Excel:

=50000 / AVERAGE(200000, 250000)

The result is 0.2222 or 22.22%, which means that the company generated $0.22 of cash flow from its operations for every dollar of assets it owned.

An alternative way to calculate CFROA is to use the net income and the asset turnover ratio. The asset turnover ratio is the ratio of sales to average total assets, and it measures how efficiently a company uses its assets to generate sales. The net income is the profit after deducting all expenses, including taxes and interest. The formula for CFROA using net income and asset turnover ratio is:

=Net Income / Asset Turnover Ratio

where Net Income is the net income, and Asset Turnover Ratio is the sales divided by the average total assets.

Using the same scenario as before, suppose the company also has the following data for the year 2023:

To calculate the CFROA using net income and asset turnover ratio, we can enter the following formula in Excel:

=10000 / (300000 / AVERAGE(200000, 250000))

The result is 0.2222 or 22.22%, which is the same as the previous method.