Free Cash Flow Calculator (FCFF + FCFE)
FCF calculator. Free Cash Flow to Firm (FCFF) and Free Cash Flow to Equity (FCFE) side-by-side from EBIT/net income + D&A + CapEx + working capital. The cash flow inputs every DCF valuation needs.
Free Cash Flow Calculator
FCFF derivation
| Component | Amount |
|---|---|
| NOPAT (EBIT × (1 − Tc)) | — |
| + D&A (non-cash) | — |
| − CapEx | — |
| − ΔWorking Capital | — |
| = FCFF | — |
FCFE derivation
| Component | Amount |
|---|---|
| Net Income ((EBIT − Interest) × (1 − Tc)) | — |
| + D&A (non-cash) | — |
| − CapEx | — |
| − ΔWorking Capital | — |
| + Net Borrowing | — |
| = FCFE | — |
Reconciliation: FCFE − (FCFF − interest after-tax + net borrowing) = — (should be ~0 within rounding). After-tax interest: —.
How to use the free cash flow calculator
Enter EBIT + tax rate + revenue
EBIT (Earnings Before Interest and Tax): the operating income line from the income statement. Tax rate: marginal corporate rate (US 21%, UK 25%, SG 17%, MY 24%, ID 22%). Revenue (optional): used to compute FCF margins. Compare the resulting margin with the same company's history and its direct peers.
Enter D&A + CapEx + ΔWorking Capital
D&A (Depreciation + Amortization): non-cash expense added back from the cash flow statement. CapEx: cash spent on PP&E acquisitions — from the investing section of cash flows. ΔWorking Capital: change in operating working capital (current operating assets − current operating liabilities). Positive = WC grew, consumed cash. Negative = WC released, freed cash.
For FCFE: add interest + net borrowing
Interest: total interest expense from the income statement. Net borrowing: new debt issued minus debt repaid. The difference between FCFF and FCFE is exactly: interest after-tax + net borrowing. FCFE represents cash available to equity holders specifically; FCFF is to all capital providers.
Compare FCFF and FCFE
Use FCFF for enterprise valuation (discount at WACC). Use FCFE for direct equity valuation (discount at cost of equity). Both methods should yield the same equity value when done correctly. Practitioners prefer FCFF because capital structure changes flow through WACC more cleanly than through FCFE.
Plug into the DCF calculator
The FCFF result is exactly the year-1 cash flow input for the DCF calculator. Project FCFF growth over a 5-10 year explicit horizon, add a Gordon-growth terminal value, discount at WACC, and you have an intrinsic enterprise value. This is the complete bottoms-up valuation workflow.
Free cash flow — the number that actually pays for valuation
Free Cash Flow is the cash a company generates after paying for the investments needed to sustain its business. Net income is an accounting construct heavily influenced by non-cash items (D&A) and accruals (revenue recognition timing). FCF strips out the accounting noise and shows what's actually available to capital providers. Every M&A deal, every LBO pitch, every equity research DCF starts with FCF. Buffet famously said: "Earnings are an opinion. Cash flow is a fact." The two flavours — FCFF (to all capital providers including debt holders) and FCFE (to equity only) — answer different questions but use the same underlying components.
The FCFF derivation, line by line
Start with EBIT (operating income before financing costs). Multiply by (1 − Tc) to convert to NOPAT (Net Operating Profit After Tax) — what operations would generate if the firm were unlevered. Add back D&A because it's a non-cash expense that reduced EBIT but didn't reduce cash. Subtract CapEx because that's real cash leaving the firm to maintain or grow PP&E. Subtract ΔWorking Capital because growth in WC (more inventory, more receivables) consumes cash. The result is FCFF: cash available to debt + equity holders combined. This is what you discount at WACC to get enterprise value.
Earnings are an opinion. Cash flow is a fact. Every M&A deal, every LBO, every serious DCF starts with FCF — not net income, not EBITDA, not adjusted-anything. The cash matters.
Why FCFE matters less in practice
FCFE captures cash available to equity holders specifically — after debt service and net new borrowing. Theoretically you could discount FCFE at the cost of equity to get the equity value directly. In practice, FCFE-based DCFs are uncommon in M&A and equity research because (a) FCFE is more volatile than FCFF as capital structure changes period to period, (b) FCFF + WACC gives an enterprise value that's independent of the financing decision, (c) FCFE needs a forecast of net borrowing every year, which is the least predictable line in most models. Done consistently, discounting FCFE at the cost of equity and discounting FCFF at WACC then subtracting net debt reach the same equity value; FCFF is simply easier to keep consistent.
What the default company shows
The defaults describe a company with USD 1,000M of revenue, USD 200M of EBIT at a 21% tax rate, USD 50M of depreciation and amortisation, USD 70M of capital spending, a USD 15M rise in working capital, USD 20M of interest and USD 10M of new net borrowing. NOPAT is USD 158M and FCFF USD 123M, a 12.3% margin on revenue. Net income here is (EBIT − interest) × (1 − tax), USD 142.2M, which gives FCFE of USD 117.2M. The reconciliation line checks the identity FCFE = FCFF − interest × (1 − tax) + net borrowing, which holds by construction and is tested.
FCFF against FCFE, maintenance versus growth CapEx, and when negative FCF is fine
FCFF = NOPAT + D&A − CapEx − ΔWC. The corporate-finance workhorse. Discount at WACC for enterprise value.
FCFE = Net Income + D&A − CapEx − ΔWC + Net Borrowing. Discount at cost of equity for equity value directly.
FCFF ≠ "operating cash flow" from the statement of cash flows. OCF + after-tax interest − CapEx = FCFF. Watch the conversion.
On the defaults FCFF is USD 123M, a 12.3% margin on USD 1,000M of revenue. Compare margins with direct competitors, not a general range.
Negative FCF can mean heavy investment or a business consuming cash; the capex and working-capital lines show which.
D&A is a non-cash addback. CapEx is the real cash outflow that replaces it economically. Mature firms have D&A ≈ CapEx.
Maintenance vs growth CapEx: a common proxy treats D&A as maintenance spending and the excess as growth. Excess CapEx funds future earnings.
ΔWC swings can mask trends: a $50M inventory build-up in one quarter is a $50M cash outflow that may reverse next quarter.
FCF yield (free cash flow ÷ market value) compares cash generation with price; it still depends on the capex and working-capital figures used.
Owner earnings (Buffett, 1986 letter): reported earnings + depreciation and other non-cash charges − the capex needed to maintain the business.
Frequently asked questions
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Operating Cash Flow (OCF) from the cash flow statement = Net Income + D&A + ΔWC adjustments. OCF does NOT subtract CapEx. FCF does. So: FCFE ≈ OCF − CapEx + Net Borrowing. FCFF ≈ OCF + after-tax Interest − CapEx. The CapEx subtraction is the critical step — companies need to keep investing to maintain operations, so OCF alone overstates cash genuinely available to capital providers.
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Because the investment comes before the cash it is meant to produce: capital spending and working capital for new capacity are paid out now, while the earnings arrive later. Negative FCF is not a verdict on its own. Look at whether the capex and working-capital lines are building something that will earn a return, or covering a business that is losing money.
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For valuation, normalised FCF is better. Trailing FCF can be distorted by: one-time working capital swings, lumpy CapEx (a single new factory in the past year), one-time tax events. Normalise by: (a) using 3-5 year average ΔWC as a % of revenue change, (b) using D&A as the long-run CapEx proxy (or 3-year average CapEx), (c) excluding one-time tax items. For LBO modelling and credit analysis, trailing FCF matters because that's what creditors actually get to absorb interest.
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Maintenance CapEx is the spending needed to maintain current operating capacity — replacing worn-out equipment, refreshing IT, normal property repairs. Growth CapEx is on top: building new factories, opening new stores, expanding into new markets. Maintenance CapEx ≈ D&A for mature firms. The difference (Growth CapEx) generates future earnings. Buffett's owner earnings, from his 1986 shareholder letter, start from reported earnings rather than FCFF: add depreciation, amortisation and other non-cash charges, then subtract the average annual capital spending the business needs to keep its long-term competitive position and unit volume, plus any extra working capital that requires. The maintenance figure has to be estimated, which Buffett said himself.
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SBC is non-cash from the company's perspective (no cash leaves the firm) — many SaaS firms add it back to compute "adjusted FCF". This is controversial. SBC dilutes shareholders, transferring value from existing holders to employees. The counter-argument, which this page follows, is that shares granted to staff are pay, so adding SBC back makes a company look more cash-generative than a firm paying the same staff in cash. Treat SBC consistently with other compensation: as a cost, and check whether a company's own "adjusted FCF" adds it back.
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The reconciliation FCFE − (FCFF − after-tax interest + Net Borrowing) should be exactly zero by construction. Any non-zero value indicates floating-point rounding only (typically <$0.01M). The identity FCFE = FCFF − Interest·(1−T) + Net Borrowing always holds — it's an algebraic consequence of the definitions.
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EBIT: the income statement; most companies report it as "operating income" (check that it excludes interest and anything you treat as non-operating). Tax rate: the effective rate is income-tax expense ÷ pre-tax income; the income-tax note reconciles it to the statutory rate. D&A: cash flow statement (operating section), often line "Depreciation and amortization". CapEx: cash flow statement (investing section), "Purchases of property and equipment" or "Capital expenditures". ΔWorking Capital: derive from cash flow statement's working-capital-changes section or balance sheet year-over-year deltas. Interest expense: income statement. Net Borrowing: cash flow statement (financing section), "Proceeds from debt" minus "Repayment of debt".
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No. EBIT, tax rate, D&A, CapEx, working capital, interest, net borrowing — every input stays in your browser. The FCFF + FCFE computations run as client-side JavaScript. Open DevTools → Network when you click Calculate and you'll see zero outbound requests. Safe for confidential M&A and equity research work.
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EBITDA = Earnings Before Interest, Tax, Depreciation, Amortization. Useful as a quick cash-flow proxy but materially overstates real cash because it doesn't subtract CapEx or working capital changes. The gap is widest where capital spending is heavy, so for a capital-intensive business EBITDA can sit far above the cash actually left over. Use EBITDA for quick screening; use FCF for valuation.
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OpenStax Principles of Finance §5.6 builds free cash flow from operating cash flow and capital spending with a worked example, and Buffett's 1986 Berkshire Hathaway letter defines owner earnings. Both are listed under Method & sources on this page.
Method & sources
How it computes
FCFF = EBIT(1 - t) + D&A - capex - change in working capital. FCFE = (EBIT - interest)(1 - t) + D&A - capex - change in working capital + net borrowing. Reconciliation shows FCFE - (FCFF - interest(1 - t) + net borrowing), zero by construction. Margins divide by revenue. RecaCorpFin.freeCashFlow, tested including the identity.
What this tool implements
- Free cash flow built as in OpenStax Principles of Finance 5.6 (operating cash flow less capital expenditures). Defaults checked: NOPAT USD 158M, FCFF USD 123M (12.3% of revenue), net income USD 142.2M, FCFE USD 117.2M. Owner earnings now follow Buffett's 1986 letter (reported earnings + non-cash charges - maintenance capex), not 'FCFF with maintenance capex'.
- Corrected: the page said discounting FCFE at the cost of equity double-counts capital structure; done consistently it reaches the same equity value as FCFF at WACC less net debt. The FCFF-positive/FCFE-negative verdict said leverage was too high; voluntary debt repayment produces the same result, and the verdict now says so.
- Removed as unsourced: 'Damodaran benchmarks' for FCFF margins by industry (tech 15-25% etc., in the verdict and how-to), Amazon and Tesla FCF histories, the EBITDA '2-3x FCF' figure, a Buffett quotation not checked against its letter, attributions of an SBC position to Damodaran and CFA Institute, and textbook chapter numbers.
Sources
- OpenStax. Principles of Finance, 5.6 Operating Cash Flow and Free Cash Flow to the Firm (FCFF). https://openstax.org/books/principles-finance/pages/5-6-operating…
- Buffett WE. Chairman's letter to the shareholders of Berkshire Hathaway Inc., 1986 (definition of owner earnings). https://www.berkshirehathaway.com/letters/1986.html
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