FCFF Calculation
Reconcile EBIT to unlevered cash flow for the enterprise DCF.
EBIT to FCFF · unlevered tax mode
Synthetic example · EUR thousands; other units as labeledCalculated model excerpt
| Input / result | 2026 | 2027 | 2028 |
|---|---|---|---|
| EBIT | 700.00 | 770.00 | 840.00 |
| Unlevered taxes | 175.00 | 192.50 | 210.00 |
| NOPAT | 525.00 | 577.50 | 630.00 |
| D&A | 100.00 | 110.00 | 120.00 |
| Capex | 150.00 | 170.00 | 190.00 |
| Increase in NWC | 30.00 | 50.00 | 50.00 |
| FCFF | 445.00 | 467.50 | 510.00 |
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The link opens your DCF workspace. The illustrated example is not loaded automatically.
Which cash flow belongs in the enterprise DCF?
The task is to build Free Cash Flow to the Firm (FCFF) for Example Company’s 2026–2028 forecast. The DCF Valuation Model uses this unlevered operating cash flow with WACC to value the enterprise, before the EV-to-equity bridge.
Enter a complete synthetic operating forecast
All amounts are EUR thousands. Opening cash is 500, receivables 200, inventory 100, PP&E 1,000, payables 100, debt 500 and equity 1,200; both balance-sheet sides total 1,800. Other opening balances and all unrelated inputs are zero. The positive input amounts below become signed expenses in the statements.
The normalized EBIT tax rate is 25% in every year. Entered model taxes are 165, 182.50 and 200: 25% of EBIT after 40 interest expense. Debt stays at 500, interest is 40, distributions are zero and interest income is zero. The DCF uses reported figures, normalized unlevered EBIT tax, no additional operating cash-flow items and no adjustments.
Operating forecast · positive inputs
| Input / result | 2026 | 2027 | 2028 |
|---|---|---|---|
| Revenue reference | 2,000.00 | 2,200.00 | 2,400.00 |
| COGS input | 1,000.00 | 1,100.00 | 1,200.00 |
| Overhead input | 200.00 | 220.00 | 240.00 |
| D&A | 100.00 | 110.00 | 120.00 |
| Capex input | 150.00 | 170.00 | 190.00 |
| Receivables input | 220.00 | 260.00 | 300.00 |
| Inventory input | 120.00 | 140.00 | 160.00 |
| Payables input | 110.00 | 120.00 | 130.00 |
| Debt input | 500.00 | 500.00 | 500.00 |
| Interest expense | 40.00 | 40.00 | 40.00 |
| Tax input | 165.00 | 182.50 | 200.00 |
Reconcile the actual DCF FCFF schedule
2026 EBIT is 2,000 − 1,000 − 200 − 100 = 700. Normalized unlevered tax is 700 × 25% = 175, leaving NOPAT 525. Add depreciation 100, subtract capex 150 and working-capital increase 30: FCFF = 525 + 100 − 150 − 30 = 445.
Operating working capital starts at 200 + 100 − 100 = 200. It ends at 230, 280 and 330, so increases are 30, 50 and 50. The production bridge follows the signed changes in receivables, inventory, payables and other operating working capital. Here the other positions are zero. FCFF then reconciles to 467.50 in 2027 and 510 in 2028.
The general schedule also includes supplied other FCFF and modeled operating non-cash or operating balance items where applicable. They are all zero in this case, so the five-component bridge is complete. NOPAT owns the operating tax measure, Working Capital Model the balances and Capex Model the investment forecast.
DCF FCFF bridge · normalized EBIT tax
| Input / result | 2026 | 2027 | 2028 |
|---|---|---|---|
| EBIT | 700.00 | 770.00 | 840.00 |
| Unlevered taxes | 175.00 | 192.50 | 210.00 |
| NOPAT | 525.00 | 577.50 | 630.00 |
| D&A | 100.00 | 110.00 | 120.00 |
| Capex | 150.00 | 170.00 | 190.00 |
| Increase in NWC | 30.00 | 50.00 | 50.00 |
| Other operating items | 0.00 | 0.00 | 0.00 |
| Full-period FCFF | 445.00 | 467.50 | 510.00 |
Distinguish FCFF from CFO minus capex
BalanceCheat’s Free Cash Flow page uses CFO − capex. Here 2026 net income is 495; CFO is 495 + 100 − 30 = 565; CFO − capex is 415. It is 30 below FCFF 445 because model earnings include 40 interest and a 10 tax shield. The difference is after-tax interest, 40 × (1 − 25%) = 30, in each year of this simple case.
This reconciliation depends on the stated tax and financing assumptions. It is not an unconditional identity for every model. If DCF tax mode is changed to Model tax expense, it subtracts taxes of 165 instead of 175 and produces 2026 FCFF 455. That output retains the financing tax effect and is not the default unlevered bridge. The product warns about financing effects in model-tax mode.
FCFF vs CFO − capex and model-tax mode
| Input / result | 2026 | 2027 | 2028 |
|---|---|---|---|
| EBIT | 700.00 | 770.00 | 840.00 |
| Interest expense | 40.00 | 40.00 | 40.00 |
| Model tax expense | 165.00 | 182.50 | 200.00 |
| Net income | 495.00 | 547.50 | 600.00 |
| D&A | 100.00 | 110.00 | 120.00 |
| Increase in NWC | 30.00 | 50.00 | 50.00 |
| CFO | 565.00 | 607.50 | 670.00 |
| Capex | 150.00 | 170.00 | 190.00 |
| CFO − capex FCF | 415.00 | 437.50 | 480.00 |
| Full-period FCFF | 445.00 | 467.50 | 510.00 |
| FCFF − FCF | 30.00 | 30.00 | 30.00 |
| FCFF: model-tax mode | 455.00 | 477.50 | 520.00 |
FCFF vs FCFE: keep the valuation frameworks separate
FCFF is cash flow before debt-holder financing effects and is discounted at WACC for enterprise value. FCFE is equity cash flow after financing effects, including the relevant debt cash flows, and needs an equity-discount framework. CFO minus capex alone does not establish a complete FCFE valuation.
This page does not provide an FCFE engine or automatic valuation-method switching. Choosing the FCFF tax mode changes the DCF cash-flow bridge; it does not convert the product into a complete FCFE workflow.
Reproduce and check the bridge
1. Download the synthetic DCF model file. Open the DCF model, then explicitly select Manage models → Import and choose the file. It contains the 2026–2028 calendar-year forecast in EUR thousands. The primary CTA opens the Value workspace without importing any example. A blank model may first show Activate; this file already has DCF active. In Model, switch to Advanced before editing, then return to Value.
2. Switch to Advanced and compare the opening balances and the operating inputs below with the model. In DCF → Periods & cash flow settings select Normalized EBIT tax (unlevered, no NOL), 2026 through 2028 and discount date 2026-01-01. Use WACC override 10%, year-end convention and first-year proration on. Compare EBIT, taxes, NOPAT, depreciation, capex, working-capital change and FCFF against the schedule.
3. Read CFO and capex from the cash-flow statement and reconcile their difference with the FCF comparison table. Temporarily switch FCFF taxes to Model tax expense to check 455, 477.50 and 520, then restore normalized EBIT tax. Terminal growth 2%, anchor 2028 and normalization off reproduce the shared DCF example.
Tax and timing limits
Normalized unlevered tax uses max(0, EBIT) × the model tax rate; it does not apply tax-loss carryforwards or automatically credit negative EBIT. A positive tax rate is an input, not tax advice. Working-capital release would increase cash flow, while investment consumes it. Displayed bridge values are rounded.
These are full-period operating cash flows. DCF Mid-Year Convention and Stub Periods explains how a later valuation date prorates and discounts them. Terminal Value owns the extension beyond the forecast.