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Cash return on capital invested [1] (CROCI) is an advanced measure of corporate profitability, originally developed by Deutsche Bank's equity research department in 1996 (it now sits within DWS Group). This measure compares a post-tax, pre-interest cash flow to the gross level of capital invested and is a useful measure of a company’s ability ...
Consumption of fixed capital (CFC) is a term used in business accounts, tax assessments and national accounts for depreciation of fixed assets. CFC is used in preference to "depreciation" to emphasize that fixed capital is used up in the process of generating new output, and because unlike depreciation it is not valued at historic cost but at ...
[citation needed] The target capital stock—the level at which a firm's profits would be highest if actual fixed capital holdings equaled that level—is determined as the level at which the marginal product of capital equals the marginal cost of capital. Then the flow of net investment per unit of time is determined by balancing losses from ...
Capital expenditures are the funds used to acquire or upgrade a company's fixed assets, such as expenditures towards property, plant, or equipment (PP&E). [3] In the case when a capital expenditure constitutes a major financial decision for a company, the expenditure must be formalized at an annual shareholders meeting or a special meeting of the Board of Directors.
In national accounts the decline in the aggregate capital stock arising from the use of fixed assets in production is referred to as consumption of fixed capital (CFC). Hence, CFC is equal to the difference between aggregate gross fixed capital formation ( gross investment ) and net fixed capital formation ( net investment ) or between Gross ...
Capital budgeting in corporate finance, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization ...
The business can show a positive net income but have very negative cash flows as the cash gets stuck in the working capital cycle, namely inventory and accounts receivable. According to one version of the discounted cash flow valuation model, the intrinsic value of a company is the present value of all future expected free cash flows.
Also, price inflation may affect the value of the capital stock. In national accounts, there are additional problems: The sales/purchases of one enterprise can be the investment of another enterprise. Therefore, to obtain a measure of the total net capital formation, a system of grossing and netting of capital flows is required.