Originally published: 12/07/2016 10:54
Publication number: ELQ-27439-1
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Generalized Free Cash Flow to the Firm (FCFF) Model for Negative Earnings Firms

This model is designed to value a firm, with changing margins, revenue growth, and other parameters.

by Prof. Aswath Damodaran
Professor at NYU Stern School of Business

finance fcff negative earnings troubled firm

Description
The user has to define the following inputs:
- Length of high growth period
- Expected growth rate in earnings during the high growth period.
- Capital Spending, Depreciation and Working Capital needs during the high growth period.
- Expected growth rate in earnings during the stable growth period.
- Inputs for the cost of capital. (Cost of equity, Cost of debt, Weights on debt and equity)

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (www.damodaran.com)

This business tool includes
1 Excel Model

Prof. Aswath Damodaran offers you this business tool for free!

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Further information

Objectives

Outputs:
- Present Value of FCFF in high growth phase
- Present Value of Terminal Value of Firm
- Value of the firm
- Market Value of Debt
- Market Value of Equity
- Value of Options Outstanding
- Value of Equity in Common Stock
- Value of Equity per Share

Use it if

Assumptions
- The firm is expected to grow at a higher growth rate in the first period.
- The growth rate will drop at the end of the first period to the stable growth rate.
- The free cashflow to equity is the correct measure of expected cashflows to stockholders.