Free Cash Flow To The Firm Or FCFF
FCFF is a metric used to determine a firm's financial health and profitability by measuring how much cash is available for all claim holders in the firm (debt holders and share holders) after all taxes and needs for reinvestment have been met.
The formula of FCFF is given by:
FCFF = EBIT(1 - tax rate) - CapEx + Depreciation - Change in non-cash working capital
This model assumes that there is no interest expense or tax benefit from that interest expense.
Positive FCFF implies that there is sufficient cash to either service debt (through interest payments or principal repayments) and / or service the equity holders (through dividends or share repurchases). On the other hand, negative FCFF means that the firm has not generated sufficient revenue to cover its costs and will have to raise more cash, either through issuing more debt or selling more equity.