Free cash flow to the firm (FCFF)
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
Cash flow available to all capital providers (debt and equity) after operating taxes, working-capital changes, and capital expenditures, before financing decisions: FCFF = EBIT · (1 - T) + D&A - Δ NWC - CapEx. Discounted at WACC to obtain enterprise value.
Free cash flow to the firm (FCFF) in plain English
Free cash flow to the firm (FCFF) is the total cash a business generates that's up for grabs by everyone who funded it — both its lenders and its shareholders — after it pays its operating taxes and spends what it needs to keep running and growing. It's measured before deciding how that money gets split between debt and equity, so it shows the raw earning power of the business itself. A common recipe: take operating profit after tax, add back depreciation (a non-cash expense), then subtract money tied up in day-to-day operations and money spent on equipment and buildings — FCFF = EBIT · (1 - T) + D&A - Δ NWC - CapEx. Since it belongs to all investors, you discount it at the blended average return they all require (WACC) to value the whole enterprise.
Also called: FCFF
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