The mounting criticism of conventional accounting measures of financial performance has prompted a search for new measures, on a par the challenges of today.

Most of the work on the new measures has been carried out by American consultancies, and three measures have earned the most recognition:

1. EVA, Economic Value-Added, developed by Stern Stewart & Co.;
2. CFROI, Cash Flow Return on Investment, proposed by HOLT Value Associates and the Boston Consulting Group (BCG);
3. SVA, Shareholder Value Added, designed by LEK/ Alcar Consulting.

The paper discusses CFROI, which is the discount rate equilising the net present value of cash flows with the investment employed to generate them. Both the flows and the investment are estimated at constant prices, through the application of an economic model which eliminates many of the distortions involved in the traditional (accounting) measures of performance. Thanks to this solution, CFROI is the real return on investment, comparable across periods, even with varying levels of inflation. It can also be applied to different companies, regardless of the country in which they operate or its accounting standards. Whenever CFROI exceeds the average real market return, the market evaluates the company at above the present value of its net assets.

CFROI is related to companies' life cycle. It is assumed that companies boasting a higher than average return will attract competition, which will bring the return rate back towards the average.

Based on data for a fictitious company X, the paper presents the calculation procedure for all the inputs necessary to compute the CFROI and to estimate the present value of the company's net assets.

The final part discusses the criteria for comparison of the different performance measures. In the author's opinion, those criteria yield CFROI as the most accurate of them.