Gross Cash Flow Number
ROCGA looks at a company’s cash generating ability by using the profit and loss account and converting it into a gross cash number.
Adjusted net income
+ depreciation and amortisation
+ operating lease
+ interest costs
+ net pension interest cost
± other adjustments
= Gross Cash Flow Number
How we calculate Return On Cash Generating Assets
The input require for the internal rate of return are:
The total number of payments, i.e. the asset life: 10yrs
Payment each period, i.e. gross cash flow: 75
Initial investment, i.e. in Total Cash Generating Assets: -500
Future value or cash release, i.e. non-depreciating assets: 100
These give us a IRR (ROCGA) of 10%.
The traditional discounted cash flow (DCF) method involves forecasting cash flows for a certain number of years and estimating a terminal value at the end of the forecast period. The total valuation is very dependent on the estimated of the terminal value.
Our method of valuation is by discounting the cash generated by the current TOCGA over the life of those assets. Add to that the DCF of internally sustainable organic growth in TOCGA.
ROCGA Value Range
Once the drives of value for the company have been identified, we use them to produce a value range over the next few years. Our proprietary algorithms estimate Gross Cash Flow and TOCGA for the forward years. We have the required data points to estimate the value of the company and finally a ±2 standard deviation for internally sustainable organic growth is used for the Value Range.