Free cash flow to firm

Free cash flow to firm (FCFF) is the cash available to all capital providers before financing effects, discounted at the WACC to reach enterprise value in a DCF valuation.

ByHoang TruongUpdated July 5, 2026

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Starting from €4,000,000 of EBIT, removing €1,000,000 of tax at 25% leaves €3,000,000 of after-tax operating profit. Adding back €600,000 of depreciation, then subtracting €900,000 of capital expenditure and €150,000 tied up in working capital, leaves €2,550,000 of free cash flow to the firm.

Where it fits

SubjectCorporate FinanceCoreTopicBusiness Valuation & DCFCore

The formula

LaTeX

FCFF = EBIT \times (1 - t) + D\&A - CapEx - \Delta NWC

Variables

$E B I T$: Earnings before interest and tax (€)
$t$: Tax rate (%)
$D & A$: Depreciation and amortisation (€)
$C a pE x$: Capital expenditure (€)
$Δ N W C$: Increase in net working capital (€)

Gives the cash available to all capital providers before financing effects; discount FCFF at the WACC to reach enterprise value.

Check yourself

PracticeCORE

A company reports EBIT of €6,000,000 and faces a 30% tax rate. Depreciation and amortisation is €800,000, capital expenditure is €1,500,000, and net working capital increased by €200,000 during the year. What is its free cash flow to the firm?

Select an answer to check your understanding.