Positive free cash flow alone does not answer that question.
Using the operating cash-flow-demand model:
CVA = Operating cash flow − Required operating cash flow
The required cash flow covers investment recovery over the asset’s economic life and the cost of capital. Operating cash flow must be calculated consistently with that model, including working-capital movements and sustaining expenditure. pruss.narod.ru
| Business area | Assets generating cash | Effective management | Efficient management |
|---|---|---|---|
| Manu- facturing | Cylinders, filling plants, customer tanks, delivery fleet | Reliable availability and correct gas quality | Faster cylinder circulation, delivery density and timely collection |
| Process Industry | On-site plants, pipelines, integrated supply installations | Meet contracted supply and availability | Energy efficiency, plant loading and disciplined investment |
| Health Care | Medical-gas installations, oxygen devices, service network | Meet clinical requirements and service commitments | Device utilisation, service productivity and reimbursement collection |
ONE illustrative industrial gas plant
Assume a €10m investment, a 20-year economic life, an 8% required return, zero inflation and no residual value.
| Annual calculation | Amount |
|---|---|
| Operating cash flow after operating costs, tax, working-capital effects and sustaining expenditure | €1.400m |
| Required annual cash flow to recover €10m over 20 years at 8% | €1.019m |
| Cash Value Added | €0.381m |
The required cash flow is calculated as an annuity:
€10m × 8% ÷ [1 − (1.08)⁻²⁰]. This follows the investment-recovery approach described in the CVA framework. help.weissr.com
The plant generates approximately €381,000 above its annual capital-recovery requirement. That surplus is a performance measure, not an additional bank receipt. The investment decision still depends on cash flows over the full life.
For your RapidKnowHow® system:
ASSETS → CUSTOMER VALUE → CASH COLLECTED → SUSTAINING EXPENDITURE → CAPITAL RECOVERY + REQUIRED RETURN → CASH VALUE ADDED
ONE board rule: measure FCF and CVA together—by business area, site and major investment. Allocate shared assets and costs once, and maintain service while improving cash generation.
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