Free Cash Flow to Firm (FCFF

Corporate Finance (Aswath Damodaran): FCFF vs. FCFE

In institutional valuation, choosing between FCFF and FCFE dictates which discount rate to apply:

• FCFF (Unlevered Free Cash Flow): Represents cash flows generated before paying interest to debt holders. Discounted using WACC to find total Enterprise Value (EV).

• FCFE (Levered Free Cash Flow): Represents cash flows remaining after debt holders have received interest and principal. Discounted using the Cost of Equity (R_e) to find Equity Value directly.

How to Use This Calculator

Enter your Operating Income (EBIT in ) (e.g. 60000000), Corporate Marginal Tax Rate (T_c in %) (e.g. 25.0), Depreciation & Amortization (D&A in ) (e.g. 12000000 (Non-cash charges added back)), Capital Expenditures (CapEx in ) (e.g. 18000000 (Fixed asset reinvestment)), Increase / Change in Net Working Capital (ΔNWC in ) (e.g. 4000000 (Working capital cash outflow)), Annual Debt Interest Expense () [for FCFE] (e.g. 8000000), and Net Debt Issued / (Repaid) in Period () [for FCFE] (e.g. 5000000 (New borrowing minus principal debt paid)). Results update instantly as you type — adjust any value to compare scenarios.

The Formula

Free Cash Flow to Firm (FCFF) & Free Cash Flow to Equity (FCFE) equations: = EBIT × (1 - T_c) (Unlevered FCF) = NOPAT + D\&A - CapEx - ΔNWC-Tax Debt Interest = Interest Expense × (1 - T_c) (Levered FCF) = FCFF - After-Tax Interest + Net Debt Issued Rate (\%) = ((CapEx - D\&A + ΔNWC) / (NOPAT)) × 100\% / EBITDA Cash Conversion Rate = ((FCFF) / (EBITDA)) × 100\%

Worked Example

For example, evaluating a firm with 60M EBIT (72M EBITDA), a 25.0% tax rate (45M NOPAT), 12M D&A, 18M CapEx, 4M ΔNWC, 8M interest expense (6M after-tax), and 5M net new debt: Net reinvestment is \ (22.2% reinvestment rate). FCFF (Unlevered) = 45 + 12 - 18 - 4 = \35,000,000.00 (35M) (48.61% EBITDA conversion). FCFE (Levered) = 35 - 6 + 5 = \34,000,000.00 (34M).

Understanding Your Result

Unit conversion precision: round to the same number of significant figures as your original measurement. Converting 6 feet to meters gives 1.8288 m — but if your measurement was approximate (±1 inch), expressing more than 2 decimal places is false precision. For international trade and technical specifications, SI units (meters, kilograms, liters) are the standard. US customary units (feet, pounds, gallons) differ from Imperial UK units: 1 US gallon = 3.785 L vs. 1 UK gallon = 4.546 L.