How the FCFF Calculator works
Free cash flow to firm (FCFF) is the cash a company generates from operations that is available to all capital providers — both lenders and shareholders — after the company has paid its cash operating expenses, taxes, and reinvested in the fixed assets and working capital needed to keep running. It is the cash flow stream used in a firm-level discounted cash flow (DCF) valuation, typically discounted at the weighted average cost of capital (WACC) to estimate enterprise value.
The formula
This calculator uses the standard EBIT-based build of FCFF:
FCFF = EBIT × (1 − Tax Rate) + D&A − CapEx − ΔNWC
- EBIT — earnings before interest and taxes, taken from the operating section of the income statement.
- EBIT × (1 − Tax Rate) is NOPAT (net operating profit after tax) — the after-tax operating profit before any financing effects.
- D&A — depreciation and amortization is added back because it reduced EBIT but is not an actual cash outflow.
- CapEx — capital expenditures on property, plant, and equipment are subtracted because they are real cash spent to maintain or grow the asset base.
- ΔNWC — the change in net working capital (e.g., receivables plus inventory minus payables) is subtracted when it increases, since a growing operating balance ties up cash; a decrease releases cash and adds to FCFF.
Worked example
With EBIT of $500,000, a 25% tax rate, $80,000 of D&A, $120,000 of CapEx, and a $20,000 increase in net working capital: NOPAT = $500,000 × (1 − 0.25) = $375,000. FCFF = $375,000 + $80,000 − $120,000 − $20,000 = $315,000. That figure — not net income — is the cash flow analysts discount at WACC when valuing the firm as a whole.
Why start from EBIT instead of net income
Because FCFF belongs to all capital providers, it is computed before interest expense (a financing cost, not an operating one). Building FCFF from EBIT keeps interest and the debt/equity mix out of the calculation entirely, which is why the same FCFF figure is used regardless of how the firm is financed. If you instead start from net income, you have to add back after-tax interest expense to reach the same result — EBIT is simply the more direct starting point.
What moves FCFF most
- Tax rate: a higher effective tax rate shrinks NOPAT directly — every dollar of EBIT converts to less after-tax operating profit.
- CapEx intensity: capital-intensive businesses (manufacturing, telecom, utilities) reinvest a large share of NOPAT back into fixed assets, which can push FCFF well below NOPAT even when the business is healthy and growing.
- Working capital swings: fast-growing companies often see receivables and inventory grow faster than payables, which consumes cash (a positive ΔNWC) and depresses FCFF even as reported profit rises.
Limitations
FCFF is a single-period snapshot built from figures you supply — it does not forecast future growth, does not account for one-time or non-recurring items unless you have already excluded them from EBIT, and treats D&A as the only non-cash adjustment (it ignores stock-based compensation, deferred taxes, or other non-cash items some analysts add back separately). This tool performs the arithmetic only; it is not investment advice, and a full DCF valuation requires multi-year projections and a WACC estimate beyond what a single FCFF figure provides.