Companies can be valued by projecting cash flow in real terms (for example, in constant 1999 dollars) and discounting this cash flow at a real discount rate (for example, the nominal rate less expected inflation). Most managers think in terms of nominal rather than real measures, so nominal measures are often easier to communicate. Interest rates are generally quoted nominally rather than in real terms (excluding expected inflation). Moreover, since historical financial statements are stated in nominal terms, projecting future statements in real terms is difficult and confusing.
An important difficulty occurs when calculating rates of return on invested capital. The historical statements are nominal, so historical returns on invested capital are nominal. But if the projections for the company are real rather than nominal, returns on new capital are also real. Projected returns on total capital (new and old) are a combination of nominal and real, which are impossible to interpret. The only way around this is to restate historical performance on a real basis, a complex and time-consuming task.