Normalization: The FCFF figures should also be normalized to set apart the recurring performance of the company.For example, the cash proceeds from a one-time asset sale should be left out of the calculation as it is neither recurring nor is it part of the nature of the business. Core Operations: The FCFF value must reflect only the core operations of the business – each line item included should be strictly from the recurring sale of goods/services provided.The free cash flow to firm (FCFF) metric is the cash available to all the firm’s creditors and common/preferred shareholders as generated from the core operations of the business and after accounting for expenses and long-term investments necessary to remain operating.īefore we discuss the formulas used to calculate the free cash flow to firm (FCFF), it is important to cover what this metric is intended to portray and discuss the standards used to determine which types of items should be included (and excluded). Often used interchangeably with the term “unlevered free cash flow”, the FCFF metric accounts for all recurring operating expenses and re-investment expenditures, while excluding all outflows related to lenders such as interest expense payments. FCFF stands for “free cash flow to firm” and represents the cash generated by the core operations of a company that belongs to all capital providers (both debt and equity).
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