What is the difference between FCFF and FCFE?

FCFF is the cash flow available to all capital providers (debt and equity) before financing payments. FCFE (Free Cash Flow to Equity) deducts net debt repayments and interest (after tax), leaving only the cash available to shareholders.

Can FCFF be negative even if a company is profitable?

Yes. A company can have positive EBIT but still produce negative FCFF if its capital expenditures and/or increase in net working capital are large enough to absorb the operating cash flow. This is common in fast-growing businesses.

Why do analysts use FCFF in a DCF instead of net income?

FCFF represents actual cash generated by operations independent of capital structure, making it the correct input for a WACC-based DCF. Net income is an accounting figure that includes depreciation policy choices, interest costs, and tax benefits from debt, all of which distort the picture.

Free Cash Flow to Firm (FCFF) Calculator

Calculate Free Cash Flow to the Firm (FCFF), the cash flow available to all capital providers — both debt and equity holders — before any financing payments. Essential for enterprise valuation and WACC-based DCF models.

By AbraCalc Editorial Team · Reviewed by AbraCalc Methodology Review · Last reviewed: 2026-06-25

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How to use this tool

Enter ebit (earnings before interest & tax), tax rate, depreciation & amortization, capital expenditures (capex) and change in net working capital in the fields above.
Results update instantly as you type — or click Calculate.
Read your free cash flow to firm (fcff) and the full breakdown beneath it.

⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.

Formula

FCFF = EBIT × (1 − Tax Rate) + D&A − CapEx − ΔNWC

EBIT × (1 − t) is also called NOPAT (Net Operating Profit After Tax). D&A = Depreciation & Amortization, CapEx = Capital Expenditures, ΔNWC = Change in Net Working Capital.

How it works

FCFF represents the total cash generated by a firm's operations that is available to all capital providers — both creditors and equity shareholders — before any interest or principal payments are made. It is calculated from EBIT to remain capital-structure neutral.

FCFF is typically discounted at the Weighted Average Cost of Capital (WACC) to arrive at enterprise value in a DCF model. Subtracting net debt from enterprise value then yields equity value.

Worked example

Industrial company FCFF

Calculate NOPAT: EBIT × (1 − tax) = $800,000 × (1 − 0.25) = $600,000
Add Depreciation & Amortization: $600,000 + $120,000 = $720,000
Subtract CapEx: $720,000 − $200,000 = $520,000
Subtract Change in Net Working Capital: $520,000 − $60,000 = $460,000

FCFF = $460,000

Common mistakes to avoid

Forgetting to add back depreciation and amortization after multiplying EBIT by (1 - tax rate), which understates FCFF because D&A is a non-cash charge already deducted in EBIT.
Using net income instead of EBIT x (1 - t), which mixes financing effects into the firm-level cash flow and defeats the purpose of a pre-financing metric.
Treating an increase in net working capital as a positive cash inflow rather than a cash outflow, reversing the sign of delta NWC in the formula.

Key terms

What is FCFF?: Free Cash Flow to the Firm is the cash available to all capital providers (debt and equity) after operating expenses, taxes, and reinvestment needs but before financing payments.
What is NOPAT?: Net Operating Profit After Tax (NOPAT) equals EBIT multiplied by (1 minus the tax rate). It represents operating earnings on an after-tax basis, ignoring financing structure.
Why use EBIT rather than Net Income for FCFF?: Starting from EBIT makes FCFF independent of capital structure (leverage). Using net income would mix in interest expense, which belongs to debt holders, distorting a measure meant for all providers.
How is FCFF used in valuation?: FCFF is projected over a forecast period and discounted at WACC to compute Enterprise Value. Subtracting net financial debt gives the equity value of the firm.
What is the difference between FCFF and FCFE?: FCFF is pre-debt cash flow available to all investors; FCFE is post-debt cash flow available only to equity holders. FCFE = FCFF − Interest×(1−t) + Net Borrowing.

Frequently asked questions

What is the difference between FCFF and FCFE?: FCFF is the cash flow available to all capital providers (debt and equity) before financing payments. FCFE (Free Cash Flow to Equity) deducts net debt repayments and interest (after tax), leaving only the cash available to shareholders.
Can FCFF be negative even if a company is profitable?: Yes. A company can have positive EBIT but still produce negative FCFF if its capital expenditures and/or increase in net working capital are large enough to absorb the operating cash flow. This is common in fast-growing businesses.
Why do analysts use FCFF in a DCF instead of net income?: FCFF represents actual cash generated by operations independent of capital structure, making it the correct input for a WACC-based DCF. Net income is an accounting figure that includes depreciation policy choices, interest costs, and tax benefits from debt, all of which distort the picture.