Financial StatementsIntermediate

Free Cash Flow

FCF

Cash left after running the business and paying for capital investments.

Detailed explanation

Free cash flow to the firm (FCFF) is the cash available to all capital providers and is what a DCF model discounts.

Formula

FCFF = EBIT × (1 − Tax rate) + D&A − Capex − Change in working capital

Example

EBIT ₹80 cr, tax 25%, D&A ₹20 cr, capex ₹30 cr, WC increase ₹10 cr → FCFF = 60 + 20 − 30 − 10 = ₹40 cr.

Why it matters

Valuation ultimately rests on the cash a business can generate.

Key points

  • FCFF vs FCFE (to equity only).
  • Core input to DCF.
  • Can be negative in growth phases.

Related terms

Discounted Cash FlowCapexWorking Capital

More in Financial Statements

Income StatementRevenueCost of Goods SoldGross MarginEBITDAEBIT

Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.