CFIRR is Better Signal Than ROE or ROIC

Back-testing of CFIRR over the past six years, period ending April 7, 2022 showed companies with the highest CFIRR produced the highest stock market returns, with the lowest volatility, and the lowest churn as expected. CFIRR was a better indicator than ROE and ROIC. This was a very interesting period to examine as it included pre-pandemic, mid-pandemic and early stages of post pandemic.

It is notable that Quintile 5, regardless of metric, showed very high returns but with the highest volatility. We have seen this phenomenon in the past. In periods of high speculation, early stage and companies with poor return on capital metrics vastly outperform companies with good return on capital metrics. Typically, this is a short period of time that will reverse itself as speculation comes out of the market. In the long-run our data clearly shows companies with the top CFIRR metrics outperform in the stock market.

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