It is the cash flow available to the company after considering all the expenses, whether revenue or capital. Further, this is a type of cash flow available for all the capital providers of the company. The capital structure of a company includes share capital and debt capital. This means that the capital providers of the company are debt holders and shareholders. Hence, free cash flow to the firm belongs to all those who fund the capital of the company. Free cash flow to firm calculator calculates the cash flow available for these capital providers.
This concept of free cash flow to firms is generally used in the process of valuation at the time of mergers and acquisitions.
To calculate free cash flow to the firm, we use the following formula:
Free Cash Flow to Firm = Cash Flow from Operations – Capital Expenditures
To simplify the above formula, cash flow from operations can also be written as:
Cash Flow from Operations = EBIT * (1 – Tax Rate) + Non-Cash Items – Working Capital Changes
Therefore, we can also write the above formula of free cash flow to the firm as:
Free Cash Flow to Firm = EBIT * (1 – Tax Rate) + Non-Cash Items – Working Capital Changes – Capital Expenditures
Free Cash Flow to Firm Calculator
How to Calculate using Calculator?
Simply enter the following data into the free cash flow to the firm calculator to get an instant result of the free cash flows available with the company.
EBIT – EBIT stands for earnings before interest and tax. This refers to income generated by the company before making payment of interest to debt holders and taxes.
Tax Rate – Enter the rate of tax applicable to the earnings of the company.
Non-Cash Items – There are some transactions that the company does not incur in cash but still records them in the statement of income and expenditure. These may include depreciation or amortization, unrealized gain or loss, provisions, etc. Due to such transactions, the profit of the entity does not reflect the actual cash flows. Hence, these non-cash items are to be added back into the profit to arrive at the cash available to the company.
Working Capital Changes – Working capital changes determine the increase or decrease in the working capital of the current period in comparison to the previous period, and that affects the available cash flow.
Capital Expenditure – Capital expenditure includes any investment made by the company in fixed assets. The expenditures whose benefit is going to be availed by the company for more than one year period are treated as capital expenditures, usually.
Excel Calculator – Free Cash Flow to Firm
You can also download our excel based calculator for free cash flow to the firm.Excel Calculator for Free Cash Flow to Firm (430 downloads)