Definition
Free Cash Flow to Firm (FCFF)
Free Cash Flow to Firm is the cash a company generates for all its capital providers, debt and equity, after operating expenses, taxes and capital expenditure.
FCFF is typically computed as operating cash flow plus after-tax interest, minus capex, or built up from EBIT adjusted for tax, depreciation, working-capital changes and capex. It represents the cash available before financing decisions.
FCFF is the basis for enterprise-level discounted cash flow valuation, discounted at the weighted average cost of capital. It differs from free cash flow to equity, which is the residual cash left for shareholders after debt servicing.
Related terms
- Free Cash FlowFree cash flow (FCF) is the cash a company has left after paying operating expenses and capital expenditure, available to reward investors or grow.
- Discounted Cash Flow (DCF)DCF is a valuation method that estimates a company's worth by projecting its future cash flows and discounting them back to today's value.
- Weighted Average Cost of Capital (WACC)WACC is the average rate a company must pay to finance its operations, blending the cost of equity and the cost of debt.
- Free Cash Flow to Equity (FCFE)Free Cash Flow to Equity is the cash available to a company's shareholders after operating expenses, capital expenditure, taxes and net debt repayments.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.