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
- 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.
- 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.
- Free Cash FlowFree cash flow is the cash a company generates after meeting operating expenses and capital expenditure — the surplus it can use to pay dividends, buy back shares, cut debt or grow.
- Weighted Average Cost of Capital (WACC)WACC is the average rate a company must pay to finance its operations, blending the after-tax cost of debt and the cost of equity in proportion to how much of each it uses.
Plain-English explainer from Investdesk Investors Encyclopedia. General information, not financial advice.