Meaning and calculation
FCFF describes cash flow to the firm for all capital providers under selected analytical assumptions. In a simple non-financial model, it equals NOPAT plus depreciation minus capital expenditure and the increase in non-cash working capital. The adjustments must be disclosed: a presentation’s label “free cash flow” does not necessarily mean the same formula.[94](#source-cv-cashflows)
Illustrative calculation
With NOPAT of eighty million roubles, depreciation of twenty million, investment of thirty-five million and an increase in working-capital needs of ten million, FCFF is fifty-five million roubles. The educational example contains no leases, complex tax effects or other claims.
Discounting and limits
FCFF is discounted using an agreed cost of capital, not automatically the required return on shares.[93](#source-cv-rates) After valuing the operating assets, a bridge to equity holders is needed for debt, cash and other adjustments. FCFF is not a promised dividend and is not the balance in an account. For financial institutions, the industrial formula may not fit the economics of the product. Related guides: [discounted cash flow](/guides/discounted-cash-flow/) and [cash-flow statement](/guides/cash-flow-statement/).