Free Cash Flow to Firm/Equity

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

Free cash flow is important because it allows a company to pursue opportunities that enhance
shareholder value.

It can be calculated by taking operating cash flow and subtracting capital expenditures.

Negative free cash flow is not bad per se, it could be a sign that a company is making large
investments.

If these investments earn a high return, the strategy has the potential to pay off in the long run.

The discounted free cash flow (DFCF) models are based on the cash available for distribution but
not necessarily distributed to shareholders.

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.