FCFF Calculator
From operating cash flow, after-tax interest and capital expenditure, compute the free cash flow to firm (FCFF) for all capital providers.
Input Data
Results
At a glance:FCFF = operating cash flow + interest expense × (1 − tax rate) − capital expenditure. It is the cash available to all capital providers (equity + debt), before the financing structure. Interest is deducted in operating cash flow, so the after-tax interest is added back to reach the capital-structure-neutral cash flow. FCFF is the core of DCF valuation (discount at WACC → enterprise value) and compares firms of different leverage. Use the marginal tax rate and read multi-period trends with WACC; this model uses the operating-cash-flow version.
Formula
FCFF = operating cash flow + interest × (1 − tax rate) − capital expenditure.
$$t = \\text{Tax rate}$$How to Use
- Enter operating cash flow.
- Enter interest expense and the tax rate.
- Enter capital expenditure to view FCFF.
At operating cash flow 1,000,000, interest 100,000, tax 16.5% (after-tax interest 83,500), FCFF at different CapEx
| Capital expenditure | After-tax interest added | FCFF |
|---|---|---|
| 200,000 | +83,500 | 883,500 |
| 400,000 | +83,500 | 683,500 |
| 600,000 | +83,500 | 483,500 |
| 800,000 | +83,500 | 283,500 |
Case Studies
Case 1: Why after-tax interest is added back
Firm: operating cash flow 1,200,000, interest 200,000, CapEx 500,000, HK tax 16.5%.
Tax shield = 200,000 × 16.5% = 33,000; after-tax interest = 200,000 × (1 − 16.5%) = 167,000. FCFF = 1,200,000 + 167,000 − 500,000 = 867,000.
Interpretation: only 167k is added, not the full 200k, because the 200k interest saved 33k tax (shield); the real extra outflow is the after-tax 167k. FCFF restores capital-structure-neutral cash — that is the (1 − tax rate) role.
Case 2: Asset-heavy vs asset-light, FCFF worlds apart
Heavy-asset A (telecom/utilities) and light-asset B (software/consulting) both: operating cash flow 2,000,000, interest 150,000, tax 16.5%, after-tax interest 125,250, but CapEx differs.
A capex 1,500,000 → FCFF = 2,000,000 + 125,250 − 1,500,000 = 625,250; B capex 300,000 → FCFF = 2,000,000 + 125,250 − 300,000 = 1,825,250.
Same 2M operating cash, light-asset B's FCFF (~1.825M) is nearly triple heavy-asset A's (~625k). So in FCFF/DCF valuation, CapEx intensity is decisive — why asset-light, high cash-conversion models command higher valuations.
FAQ
Why add back after-tax interest?
FCFF measures cash before the financing structure, so interest (paid to debt holders) is added back. After-tax because interest is tax-deductible — the shield value (× tax rate) is a real saving, so the amount truly 'extra' is the after-tax interest; multiplying (1 − tax rate) restores the capital-structure-neutral cash flow.
FCFF vs FCFE?
FCFF is for all capital providers (discount at WACC → enterprise value); FCFE is for shareholders only (FCFF − after-tax interest + net debt → equity value at the cost of equity). Use FCFF for the whole firm, FCFE for shareholder returns.
How is FCFF used in valuation?
In a DCF model, forecast FCFF over years, discount at WACC and add a terminal value to get enterprise value; subtract net debt for equity value. Because FCFF ignores capital structure, it suits comparing firms with different leverage.
Which tax rate in Hong Kong with two-tier profits tax?
Use the marginal tax rate — the rate on the next dollar of profit, because the tax shield works at the margin. The HK standard rate is 16.5%; since 2018/19 the two-tier profits tax taxes the first HK$2M of assessable profits at 8.25% and the rest at 16.5%. For large firms the marginal rate is 16.5%; for SMEs still under HK$2M, 8.25% fits better. If the firm has concessions or losses, the effective rate may differ — calibrate with 'tax expense ÷ pre-tax profit' from the accounts. This defaults to 16.5%; adjust as needed.
Is negative FCFF a red flag?
Not always. Negative FCFF means post-tax-interest operating cash still cannot cover CapEx — but the story differs. (1) High-growth expansion: a promising firm invests heavily in capacity, short-term FCFF negative yet sowing future cash — a healthy 'investment phase' (many tech firms early on). (2) The warning: stagnant growth with weak operating cash yet heavy maintenance CapEx, long-term negative, signals a weak cash-generating model. Judge by whether CapEx is expansionary or maintenance, and future cash expectations; read FCFE and multi-period DCF, not one year.
Related Tools
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.