Free Cash Flow to the Firm

Free cash flow to the firm (FCFF) refers to the cash available for distribution to shareholders and lenders after operating and capital expenditures. This is different from free cash flow to equity (cf. ) which represents cash available to pay equity shareholders only. FCFF is derived by taking a company’s cash flow from operations (this can be found in the cash flow statement), adding interest expenses (net of tax) and deducting fixed capital expenditure. Free Cash Flow to the Firm = Cash flow from operations + Interest expense - Capital expenditure