Free Cash Flow to Firm, of FCFF is actually the amount of money that is available for distribution to the firm's current investors after accounting for expenditures in capital, taxes, working capital, investments and depreciation expenses are all accounted for. The higher the FCFF, the more money a firm has to give investors, so it's important in form valuation using the Discounted Cash Flow Model.
Since the FCFF is what is available to investors, this means that this in layman terms is the value of the firm to investors! So, if we can calculate all FCF in the future, we are essentially calculating the possible value addition that the firm provides to investors. So by this understanding, value of the firm can be calculated by taking into account the Present Value of all Future FCF, discounted at the company's Weighted Average Cost of Capital (WACC)!
I think investopedia really explains this idea quite clearly, the link is right here! https://www.investopedia.com/terms/f/freecashfl...
I also like to read and listen to materials provided by Professor Aswath Damodaran, who is an extremely acclaimed scholar that writes theories about corporate finance, and provides alot of his educational materials FOC, via youtube or powerpoint slides! just googling his surname will provide you alot of materials to help you along the valuation and corporate finance path. He certainly has helped me alot in my own journey and my struggle with Corp. Fin Projects!
Free Cash Flow to Firm, of FCFF is actually the amount of money that is available for distribution to the firm's current investors after accounting for expenditures in capital, taxes, working capital, investments and depreciation expenses are all accounted for. The higher the FCFF, the more money a firm has to give investors, so it's important in form valuation using the Discounted Cash Flow Model.
Since the FCFF is what is available to investors, this means that this in layman terms is the value of the firm to investors! So, if we can calculate all FCF in the future, we are essentially calculating the possible value addition that the firm provides to investors. So by this understanding, value of the firm can be calculated by taking into account the Present Value of all Future FCF, discounted at the company's Weighted Average Cost of Capital (WACC)!
I think investopedia really explains this idea quite clearly, the link is right here! https://www.investopedia.com/terms/f/freecashfl...
I also like to read and listen to materials provided by Professor Aswath Damodaran, who is an extremely acclaimed scholar that writes theories about corporate finance, and provides alot of his educational materials FOC, via youtube or powerpoint slides! just googling his surname will provide you alot of materials to help you along the valuation and corporate finance path. He certainly has helped me alot in my own journey and my struggle with Corp. Fin Projects!