Some notes on FCFF

1. Free Cash Flow to Firm/Equity<br />Free cash flow (FCF) represents the cash that a company is able to generate after spending out the money required to maintain or expand its asset base<br />Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value.<br />It can be calculated by taking operating cash flow and subtracting capital expenditures.<br />Negative free cash flow is not bad per se, it could be a sign that a company is making large investments.<br /> If these investments earn a high return, the strategy has the potential to pay off in the long run. <br />The discounted free cash flow (DFCF) models are based on the cash available for distribution but not necessarily distributed to shareholders. <br />Common equity can be valued either directly discounting free cash flow to equity (FCFE) and indirectly by calculating the value of the firm using free cash flow to the firm (FCFF) and then subtracting the value of non-common stock capital (usually debt and preferred stock) from this value.<br />