FCFF Calculator – Free Cash Flow to Firm

Compute Free Cash Flow to Firm (FCFF) from EBIT, Net Income, or Cash Flow from Operations. Optionally estimate enterprise value using WACC and terminal value.

FCFF Calculator

FCFF = EBIT × (1 − Tax Rate) + Depreciation & Amortization − Capex − ΔWorking Capital

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Use net Capex (gross Capex minus asset sales) if possible.

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Increase in WC = positive; decrease in WC = negative.

Optional: DCF valuation inputs
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Valuation assumes a single‑stage perpetuity: Enterprise Value = FCFF1 / (WACC − g), where FCFF1 = FCFF × (1 + g).

What is Free Cash Flow to Firm (FCFF)?

Free Cash Flow to Firm (FCFF) measures the cash that a company’s core operations generate after paying operating expenses, taxes, and required reinvestments in fixed and working capital. It represents cash available to all capital providers – both debt and equity holders.

Because FCFF is capital‑structure neutral, it is the standard starting point for enterprise DCF valuation and for comparing companies with different leverage.

FCFF formulas (three equivalent approaches)

1. From EBIT (most common in valuation)

Formula

\( \text{FCFF} = \text{EBIT} \times (1 - T) + \text{D\&A} - \text{Capex} - \Delta WC \)

  • EBIT: Earnings Before Interest and Taxes
  • T: marginal tax rate
  • D&A: Depreciation & amortization
  • Capex: Capital expenditures (net of disposals)
  • ΔWC: Change in operating working capital

2. From Net Income

Formula

\( \text{FCFF} = \text{Net Income} + \text{D\&A} + \text{Interest} \times (1 - T) - \text{Capex} - \Delta WC \)

Here we “un‑lever” net income by adding back after‑tax interest to get to cash flow available to both debt and equity.

3. From Cash Flow from Operations (CFO)

Formula

\( \text{FCFF} = \text{CFO} + \text{Interest} \times (1 - T) - \text{Capex} \)

CFO already includes working capital changes and non‑cash items, so only Capex and after‑tax interest are adjusted.

How to use this FCFF calculator

  1. Choose the method at the top:
    • From EBIT – best when you have a clean income statement.
    • From Net Income – useful when you start from bottom‑line profit.
    • From CFO – convenient if you rely on the cash flow statement.
  2. Enter operating inputs:
    • EBIT or Net Income or CFO (depending on method).
    • Tax rate (statutory or effective, but be consistent across years).
    • Depreciation & amortization, Capex, and ΔWorking Capital.
  3. Review FCFF: the result is the free cash flow to firm for the current period (usually one year).
  4. Optional valuation: expand the DCF section to enter WACC, long‑term growth, net debt, and shares. The tool will estimate enterprise value, equity value, and implied value per share using a simple perpetuity model.

Interpreting FCFF

  • Positive and growing FCFF usually indicates a healthy business that generates cash above what is needed to maintain and grow operations.
  • Negative FCFF can be a red flag for mature companies, but may be normal for high‑growth firms investing heavily in Capex and working capital.
  • Always analyze trends over time and compare FCFF to revenue, EBIT, and invested capital, not just as a single absolute number.

From FCFF to enterprise value

In a single‑stage DCF, if you assume FCFF grows at a constant rate \( g \) forever and the appropriate discount rate is the WACC, then:

Step 1 – Next‑year FCFF

\( \text{FCFF}_1 = \text{FCFF}_0 \times (1 + g) \)

Step 2 – Enterprise value

\( EV = \dfrac{\text{FCFF}_1}{WACC - g} \)

Step 3 – Equity value and price per share

\( \text{Equity Value} = EV - \text{Net Debt} \)    \( \text{Price per Share} = \dfrac{\text{Equity Value}}{\text{Shares}} \)

In practice, analysts usually build multi‑year forecasts and a separate terminal value. This calculator focuses on the core FCFF mechanics and a simple perpetuity for quick checks.

Common pitfalls and best practices

  • Match definitions: if you use EBIT, make sure it is operating EBIT (excluding non‑recurring items) and that Capex and ΔWC are also operating only.
  • Use net Capex: subtract proceeds from asset sales from gross Capex to avoid overstating reinvestment.
  • Working capital sign convention: an increase in working capital is a use of cash (subtract), a decrease is a source of cash (add, i.e. negative ΔWC).
  • Tax rate consistency: use the same tax rate for EBIT and interest adjustments across all forecast years.

FAQ

Is FCFF the same as unlevered free cash flow?

Yes. In most corporate finance and valuation contexts, “FCFF” and “unlevered free cash flow” are used interchangeably to mean cash flow available to all capital providers before interest payments.

When should I use FCFF vs. FCFE?

Use FCFF when:

  • Capital structure is expected to change over time.
  • You want to value the enterprise and then derive equity value.
  • You compare companies with very different leverage.

Use FCFE when you focus specifically on equity cash flows and leverage is relatively stable.

What tax rate should I use in FCFF?

For valuation, practitioners often use the marginal corporate tax rate in the company’s main jurisdiction, not the current effective rate, because the marginal rate better reflects long‑run expectations.