Corporate Valuation & DCF Lab

Free Cash Flow to Firm (FCFF) vs. Equity (FCFE) Calculator

Model NOPAT waterfalls, Capex & working capital reinvestment, debt financing cash flows, and DCF equity valuation bridges.

Business Presets:

1. Operating & Financial Parameters

$
Operating income (EBIT) before interest and taxes.
$
$
$
Positive = cash consumed; Negative = cash released.
$
$

Valuation Discount Hurdles

2. Free Cash Flow Waterfalls (FCFF vs. FCFE)

Unlevered FCFF All Capital Providers
Operating EBIT:$20,000,000
Less: Taxes ($EBIT imes t$):-$5,000,000
= NOPAT / EBIAT:$15,000,000
Plus: Non-Cash D&A:+$4,000,000
Less: Capex:-$6,000,000
Less: Working Capital ($Delta NWC$):-$1,500,000
Free Cash Flow to Firm (FCFF): $11,500,000
FCFF Conversion: 57.5% of EBIT
Levered FCFE Equity Claimholders
Starting from FCFF:$11,500,000
Less: After-Tax Interest ($Int imes [1-t]$):-$2,250,000
Plus: Net Debt Borrowing:+$1,000,000
Net Income (Reconciliation):$12,750,000
Total Reinvestment Drag:-$3,500,000
Debt Financing Effect:-$1,250,000
Free Cash Flow to Equity (FCFE): $10,250,000
FCFE Conversion: 80.4% of Net Income
Free Cash Flow to Firm (FCFF)
$11.50M
Unlevered operating cash flow
Free Cash Flow to Equity (FCFE)
$10.25M
Levered cash to equity owners
Implied Enterprise Value (EV)
$168.4M
Discounted via WACC (9.50%)
Implied Equity Value
$110.6M
Discounted via Cost of Equity ($K_e$)

3. Reinvestment & Valuation Bridge

Reinvestment Rate Metrics

Net Capital Expenditure ($Capex - D&A$): $2,000,000
Total Reinvestment ($Net Capex + Delta NWC$): $3,500,000
Firm Reinvestment Rate ($Reinvestment / NOPAT$): 23.3%
Fundamental Growth Potential ($ROIC imes Reinvest$): 3.5%

DCF Valuation Methodology

FCFF Valuation Model: $EV = rac{FCFF imes (1+g)}{WACC - g}$
FCFE Valuation Model: $Equity = rac{FCFE imes (1+g)}{K_e - g}$
Spread Difference ($EV - Equity$): $57.8M

4. Sensitivity Matrix: WACC vs. Growth Rate ($g$)

Implied Enterprise Value ($EV$)

Evaluates implied Enterprise Value ($EV, in Millions) across varying discount hurdles (WACC) and perpetual growth rates ($g$).

WACC Long-Term Perpetual Growth Rate ($g$)
1.50% 2.00% 2.50% 3.00% 3.50%
* Blue highlighted cell indicates current baseline valuation.

Executive Guide: Free Cash Flow to Firm vs. Equity Valuation

1. Free Cash Flow to Firm (FCFF / Unlevered FCF)

FCFF represents the net operating cash generated by a company that is available to be distributed to all capital providers (both debt lenders and equity shareholders) after covering operational expenses, paying income taxes, and funding capital expenditures and net working capital changes. Because FCFF is independent of debt interest and capital structure leverage, it is discounted using the Weighted Average Cost of Capital (WACC) to compute Enterprise Value (EV).

$$ ext{FCFF} = ext{EBIT} imes (1 - t) + ext{D&A} - ext{Capex} - Delta ext{NWC}$$

2. Free Cash Flow to Equity (FCFE / Levered FCF)

FCFE represents the residual discretionary cash available solely to common shareholders after satisfying operating needs, taxes, reinvestment, and debt service obligations (after-tax interest expense and net debt principal borrowing or paydown). FCFE is discounted using the Cost of Equity ($K_e$) to determine the intrinsic Equity Value of the business directly.

$$ ext{FCFE} = ext{FCFF} - ext{Interest} imes (1 - t) + ext{Net Borrowing}$$

3. Working Capital Reinvestment & Cash Drag

An increase in Net Working Capital ($Delta ext{NWC} > 0$) represents cash tied up in receivables, inventory, or prepaid expenses that cannot be distributed to investors. Efficient working capital management (lowering DSO, accelerating inventory turns, extending DPO) directly increases free cash flow and expands corporate valuation without requiring additional sales growth.

4. When to Use FCFF vs. FCFE in Corporate M&A

FCFF is the gold standard for companies with volatile, highly leveraged, or evolving capital structures (e.g., LBOs, acquisitions, distressed turnarounds) because debt changes do not distort the operating valuation. FCFE is preferred when evaluating stable financial institutions, REITs, or companies with steady target debt-to-equity ratios.

Frequently Asked Questions

Free Cash Flow to Firm (FCFF, unlevered free cash flow) is the cash flow generated by core operations available to all capital providers (both debt and equity holders) after paying taxes and reinvesting in Capex and working capital. Free Cash Flow to Equity (FCFE, levered free cash flow) is the residual cash available exclusively to common shareholders after servicing debt interest and net debt principal borrowing/repayments.

FCFF = [EBIT × (1 - Tax Rate)] + Depreciation & Amortization - Capital Expenditures - Change in Net Working Capital ($Delta$NWC). This is also written as: FCFF = NOPAT + D&A - Capex - $Delta$NWC.

From FCFF: FCFE = FCFF - [Interest Expense × (1 - Tax Rate)] + Net Debt Issued (or - Net Debt Repaid).
From Net Income: FCFE = Net Income + D&A - Capex - $Delta$NWC + Net Debt Borrowing.

FCFF represents unlevered cash flows to all capital claimholders and must be discounted at the Weighted Average Cost of Capital (WACC), yielding Enterprise Value (EV). FCFE represents levered cash flows to equity claimholders and must be discounted at the Cost of Equity ($K_e$), yielding Equity Value directly.

Yes. You can export complete income statement bridges, NOPAT waterfalls, working capital changes, FCFF/FCFE reconciliations, and WACC vs growth sensitivity matrices as a UTF-8 CSV spreadsheet with formula injection defense or print an executive audit.

Continue Exploring Corporate Valuation & Cash Flow Tools

Estimate weighted cost of capital in the WACC Lab, bridge enterprise value to equity in the Enterprise Value (EV) Lab, unlever peer betas in the Levered Beta Lab, analyze return on capital in the ROIC & Capital Lab, or explore our Cash Flow & Break-Even Hub.