Free cash flow to the firm
The cash flow available to everyone financing the business, shareholders and lenders alike: before interest is paid and debt repaid.
Formula
FCFF = \text{Operating cash flow} + \text{Interest} \times (1 - t) - \text{Capital expenditure}t is the profit tax rate as a fraction of one. Interest is added back because the measure is calculated before any settlement with lenders.
How to read the number
Discounted at the weighted average cost of capital, it gives the value of the whole business rather than of the shareholders' slice.
When the metric lies
Confusing it with the flow to shareholders is a common error: discounted at the cost of equity, this measure overstates the valuation.
Where it is used
The metric is calculated across every security in the catalogue and appears on the instrument card, in the multiples table and in the screener.
Also known as: unlevered free cash flow