BAR Valuation · Updated November 2026
FCFF vs FCFE: Which Investors Get the Cash Flow?
FCFF belongs to all capital providers. FCFE belongs to equity holders. Match the cash flow with the correct discount rate.
FCFF
Free Cash Flow to the Firm represents cash flow available broadly to debt and equity providers and is commonly paired with WACC.
FCFE
Free Cash Flow to Equity represents cash flow available specifically to equity holders after relevant debt-financing effects and is commonly paired with cost of equity.
Working capital
Increases in operating net working capital generally consume cash.
Capital expenditures
Capital investment generally reduces free cash flow.
The takeaway
FCFF to WACC. FCFE to cost of equity.
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FAQ
Should FCFF be discounted at cost of equity?
Normally the matching framework uses WACC.
Does an increase in receivables generally reduce free cash flow?
Yes, all else equal.
Does depreciation reduce cash directly?
No.