# Cash value added (difference in gross cash flow)

Der Cash-Value-Added (CVA) eines Jahres ist gleich dem Cash flow jener Periode abzüglich der totalen Kapitalkosten. Der Cashflow bezieht sich unter Einrechnung der Zinsen, und die totalen Kapitalkosten werden verstanden als Vermögen multipliziert mit den durchschnittlichen Kapitalkosten WACC. Der CVA ist ein Konzept des Übergewinns (neben dem Added value, dem Econo-mic-Profit und neben EVA) und wird von der Beratungsfirma Boston Consulting Group eingesetzt.
The consulting company mentioned determines two parameters when calculating the CVA:

1. The free cash flow plus interest. For this purpose, the so-called gross cash flow is determined and the investments are deducted from it. The gross cash flow results from the profit (with a few adjustments). The accounting depreciation and the interest expense are added to the profit. Basically, gross cash flow is the cash flow (determined using the indirect method) plus interest expenses. In order to get the free cash flow, the investments have to be deducted from this. They are not taken from a business plan, but are calculated in such a way that an economic depredation is determined for the assets that are subject to wear and tear and depreciation, the so-called depreciable assets.

2. The size (free cash flow + interest) is compared to the total cost of capital. This is based on the so-called gross investment. This is the fixed and current assets, valued at historical costs, possibly corrected for inflation. The gross investment represents the substitute value. These gross investments are multiplied by the average cost of capital, WACC. The WACC are a mean value between the cost of equity and the cost of debt, according to the company's capital structure.

The described determination of the CVA can be expressed by formulas:

CVA = (FCF + interest) - substitute value * WACC

The Boston Consulting Group presents the formula for the CVA (top equation) in a variant that relates the CVA to the capital employed (in the sense of a substitute value):

For this purpose, the size (free cash flow + interest) is first related to the capital (substitute value). This results in a number of returns, referred to as CFROI (Cash Flow Return On Investment). This CFROI return is then compared to the average cost of capital WACC. If the difference CFROI - WACC is positive, then there is an excess profit, i.e. an outperformance of the relevant period.

The CFROI is the economic and monetary-related overall result for the benefit of all investors, divided by the capital employed (in the sense of a substitute value).

The concept of cash value added is closely related to economic value added (EVA). Both relate the cost of capital not to the market value, but to the substitute value of the assets. Both develop the respective excess profit here CVA, there EVA to a concept with which company valuations are possible.

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