CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II
Free cash flow to the firm (FCFF) is best described as the cash flow available to:
FCFF is the cash flow available to all capital providers, both debt holders and equity holders, after operating costs, taxes, and investment in working capital and fixed capital. FCFE, by contrast, is what remains for shareholders after debt service and net borrowing.
- Acommon shareholders only, after debt service
- Ball capital providers, after operating costs, taxes and investment needsCorrect
- Cbondholders only, before any capital expenditures
Explanation
FCFF is the cash flow generated by operations after tax and after investment in working capital and fixed capital, available to all providers of capital (debt and equity). Cash available only to shareholders after debt service is FCFE, and FCFF is calculated after capital expenditures, not before.
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