Download App

Log in to access Online Inquiry

What Is Free Cash Flow To Firm(FCFF)?

Views 20732022.05.25

article image

Key takeaways

  • Free cash flow to firm (FCFF) is a portion of a company's cash that could be distributed without affecting its operations

  • FCFF=EBIT× (1-tax rate)+Non-cash expenses-Capital Expenditure-Change in working capital

  • FCFF provides important insights into the value and health of a company

Understanding FCFF

Free cash flow to firm (FCFF) refers to the amount of cash flow available to distribute without affecting its operations. FCFF also is a good indicator of a company's ability to pay dividends, conduct share repurchases, or pay back its debt.

A common equation for FCFF is the following:

FCFF=EBIT(1-tax rate)+Non-cash expenses-Capital Expenditure-Change in working capital

(EBIT stands for earnings before interest and taxes, is a company's net income before income tax expense and interest expenses are deducted.

Capital expenditures are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, or equipment.

Working capital represents the difference between a company’s current assets and current liabilities.)

FCFF is one of the many benchmarks used to compare and analyze a firm's financial health. A positive FCFF value indicates that the firm has remaining cash after expenses and investments. In contrast, if the value is negative, the firm has not generated enough cash to cover its costs and investment activities.

FCFF provides an insight into the value and the health of a company that is missing from the income statement. By taking non-cash expenses, capital expenditure as well as changes in working capital into account, FCFF is more transparent in showing the company’s potential to produce cash and profits compared to net income.


There are two types of Free Cash Flow: Free Cash Flow to Firm (FCFF, also referred to as Unlevered Free Cash Flow) and Free Cash Flow to Equity (FCFE, also referred to as Levered Free Cash Flow).  

The FCFF is the free cash flow available to all investors, both equity and debt holders. And by further accounting for payment of interest of debt and net debt issued, the FCFE represents the free cash flow ultimately available for distribution only to equity holders.

A common equation for FCFE is the following:

FCFE=FCFF-Interest × (1-tax rate)+Net borrowing

The content in this article is intended for general circulation and informational purposes only. It does not take into account the investment objectives, financial situation or needs of any particular person and should not be relied on as advice or recommendation. Information provided in this article are not specifically intended for or specially targeted at the public in any specific jurisdiction. Neither Moomoo Inc. nor its affiliates are licensed Financial Advisers and do not provide financial advice. You are advised to consult your financial adviser before making any commitment to invest in any capital markets product. The information published is not and does not constitute or form part of any offer, invitation or solicitation to subscribe or to enter into any transaction in capital markets products. Moomoo is a professional trading app offered by Moomoo Inc. In the U.S., investment products and services on Moomoo are offered by Futu Inc., Member FINRA/SIPC. In Singapore investment products and services are offered through Futu Singapore Pte. Ltd., regulated by the Monetary Authority of Singapore (MAS). This advertisement has not been reviewed by the MAS. Moomoo Inc., Futu Inc. and Futu Singapore Pte. Ltd are affiliated companies. Any illustrations, scenarios, or specific securities referenced herein are strictly for illustrative purposes. Past investment performance does not guarantee future results. Investing involves risk and the potential to lose principal.

Trade like a pro with moomoo

Get free stock and start your professional trading today

Terms and conditions apply right-arrow