Computing Free Cash Flow to the Firm from the Statement of Cash Flows

Free cash flow to the firm (FCFF) represents the cash flow that a company generates in an accounting period, after paying operating expenses and making necessary expenditures. This cash flow represents the return to all providers of capital, whether debt or equity. It can be used to pay off debt, repurchase shares, pay dividends or be retained for future growth opportunities.

FCFF can be calculated from the statement of cash flows as follows:

FCFF = Cash flow from operations + After-tax interest expense – Capital expenditures

Depending on the company being analyzed, investors may want to deduct acquisitions as well as capital expenditures. Essentially acquisitions are a means of buying capacity that could othewise be built through capex.

For more information, see all articles on: Accounting, Financial Statement Analysis, Fundamental Analysis, Investing in Stocks

See also:
  • Free Cash Flow
  • Computing Free Cash Flow to Equity from Free Cash Flow to the Firm
  • Constant Growth Free Cash Flow to the Firm Valuation Model
  • Free Cash Flow as Cash Flow
  • Computing Free Cash Flow to the Firm from Net Income
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    5 Responses to “Computing Free Cash Flow to the Firm from the Statement of Cash Flows”

    1. TPX: Can Tempur-Pedic Offer Investors Firm Support? | Stock Market Beat Says:

      [...] that its earnings would be below expectations, I noted that the company generated $130 million in free cash flow to the firm last year. Tempur-Pedic’s enterprise value was $1.4 billion, including $600 [...]

    2. YRC: Amendment to YRC Credit Agreements, One of Many Reasons I Prefer Landstar | Stock Market Beat Says:

      [...] December, I said from a “full-cycle perspective, the five-year average free cash flow for YRC Worldwide (YRCW) is $152 million, and the current yield based on that figure is 6.6% – [...]

    3. Stock Market Beat » Archive » Coach Reports Third Quarter Earnings of $0.46, up 19% on a 19% Sales Increase: Financial News - Yahoo! Finance Says:

      [...] should be survivable. With an enterprise value of just under $10 billion and $679 million in free cash flow (cash from operations less capital expenditures) over the last 12 months, its free cash [...]

    4. RSH: RadioShack Earnings | Stock Market Beat Says:

      [...] yielding about 7%. To generate equity returns higher than this, RadioShack will have to limit its free cash flow declines to 8% per year – in other words, they can’t get any [...]

    5. AW: Allied Waste Turning Quickly into Gold | Stock Market Beat Says:

      [...] more than meeting estimates and a modest increase in the price/book ratio to about 1.3 times. A free cash flow yield of 7% (the average of its peers) would also support a $14.50 share [...]

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