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: