What is FCFF and How to Calculate it in a Financial Model

 Free Cash Flow to the Firm (FCFF) is a measure of the amount of cash generated by a business that's available to its capital providers, namely equity holders and debt holders. It represents the cash flow available to all investors after all operating expenses and capital expenditures are covered.

In all the financial model templates on this site that are for startups and going concerns, you will see a calculation at the bottom of the pro forma monthly and annual tabs that is 'cash flow' as well as actual statement of cash flows. Both reports show free cash flow to the firm.


  • Start with Customer Receipts (making sure to account for receivables logic if items are sold on account or prepayments if cash is collected before the service/product is delivered)
  • Reduce any expected refunds.
  • Reduce all operating expenses (accounting for the fact that some of these things could be depreciation expenses such as equipment in manufacturing) Also, make sure to adjust for cost of goods sold vs when inventory purchases are made if relevant.
  • Reduce all capital expenditures.
  • Reduce all debt service (principal and interest payments)
  • Reduce estimated corporate income taxes.
  • If you are planning on an exit value, make sure to account for net exit proceeds and any related tax effects (this is important if you are doing a proper DCF Analysis).

One of the first output calculations I ever learned how to do was get down to the actual cash flow change per period based on all possible events and cash / non-cash items. This is because the main users were investors / founders / executives that wanted to run a DCF Analysis on the scenario as well as calculate IRR. To do either of those things, you must get all the way down to the actual cash change per period.

Additionally, one of the main things that I solve for in these financial models is the minimum equity required, which is going to be what capital providers need to provide to avoid going cash negative after accounting for all operating activity (cumulative net burn), any startup costs, capex, customer receipts, inventory purchases, and payables / receivable activity if relevant.

Sometimes it requires more complex techniques to figure this out. For example, if you have an enterprise SaaS company that collects cash up front for contracts, but earns the revenue over the life of the contract, there needs to be a way to show the earned revenue, but also offset that with cash collected on the cash flow statement in order to know how much cash is actually flowing each period.

You also can have a lot of complexity with manufacturing financial models that have terms for payables, receivables, inventory purchasing schedules as well as non-cash items for cost of goods sold (such as equipment used directly to produce products). Such templates require a lot of careful formulas to come up with the right FCFF.