Tab #10: Free Cash Flow to the Firm (FCFF) | Fixed Assets (FA) | Net Working Capital (NWC)

The FCFF | FA | NWC tab serves a purpose of forecasting FCFF, which is an option that can be used in the DCFs | TVs tab, for discounted cash flow (DCF) valuation. FCFF is a measure of a company's ability to generate cash after accounting for capital expenditures, which is why it's used in DCF valuation methods. This sheet lets you accomplish these FCFF forecasting steps effectively, and comes with flexible assumption inputs and sensitivity analysis options. More specifics on this sheet are described below:

1. Free Cash Flow to the Firm (FCFF): This is also known as "unlevered free cash flow" (UFCF). The top section of this tab shows you the line items and calculations required in order to get down to FCFF, and includes conservative-case, base-case, and optimistic-case scenario calculations as well (which are hidden by default). The forecast FCFF is estimated based on the assumptions subsection, the fixed assets schedule, and the net working capital schedule. The assumptions subsection includes dropdown projection options based on historical average revenue growth and percent of revenue expenditure line items, specifically over last year, the last 3-years, and the last 5-years.
   • Note that the assumptions section also includes input cells for conservative, base, and optimistic revenue growth cases. This is where investors should input their worst-case, most-likely case, and best-case assumptions on how they expect revenue to perform in the future. These inputs, or lack of inputs, will be reflected in the company's FCFF forecasts.
2. Fixed Assets (FA): The fixed assets schedule is used in the FCFF calculation because it provides information about a company's capital expenditures, which is subtracted from operating cash flow to get to FCFF. The top section of this schedule shows you the calculation needed to get to the capital expenditure number. The assumptions subsection has two dropdown projection options for depreciation and amortization and for capital expenditures, specifically over the last year, the last 3-years, and the last 5-years. These are both expressed as a percentage of the company's beginning PP&E.
3. Net Working Capital (NWC): Net working capital is the difference between a company's current assets and current liabilities. It represents the amount of short term liquidity a company has to meet its short-term obligations. The NWC schedule on this sheet therefore provides a picture of the company's liquidity over time. Note that a decrease in NWC will increase a company's operating cash flow and result in a higher FCFF, whereas an increase in NWC will result in a lower FCFF. The NWC on this sheet shows you the non-cash current assets and current liabilities required in order to calculate NWC, and includes conservative-case, base-case, and optimistic-case scenario calculations as well (which are hidden by default).The assumptions subsection forecasts accounts receivable, inventories, and accounts payable by calculating the company's days sales outstanding (DSO), days inventory held (DIH), and days payable outstanding (DPO) respectively, with the other net working capital items being represented as a percent of total revenues. There are also dropdown projection options for these items, specifically over the last year, the last 3-years, and the last 5-years.