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%.

Total Cash Generating Assets

+ Net current assets

+ Other investments

+ Land

= Non-depreciating assets

 

+ Inflation adjusted PPE

+ Inflation adjusted intangible assets

+ Capitalized operating lease

+ Goodwill

= Depreciating assets

 

Total Cash Generating Assets = Non-depreciating assets + Depreciating assets

ROCGA Valuation

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.