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Performance evaluation
One can determine this by comparing the cash flow from assets and cost of capital.
1. Cash flow from assets
Cash flow from assets is calculated as Operating Cash flow - Net Capital Spending - Change in NWC.
1. Operating Cash flow
Operating Cash flow = Earnings before interest and taxes + depreciation - taxes
2. Net capital spending
Net capital spending is money spent of fixed assets less money received from the sale of fixed assets. Net capital spending = Ending net fixed assets - Beginning net fixed assets + Depreciation
3. Change in Net working capital
Net working capital is difference between current assets and current liabilities. Change in net working capital is the difference between net working capital between two years.
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