FCFF from EBITDA when EBITDA is negative

Hi guys,

I have a question regarding the FCFF from EBITDA when EBITDA is already negative.

The conventional formula for FCFF equals

FCFF= EBITDA(1-tax rate) - Depr(tax rate)-FCInv-Change in WC

If EBITDA is already negative my assumption is that the formula changes as no taxes are paid


Is this logic correct? What are your views?

Best regards…

Hi TheHans,

The logic looks fine to me too.


we should use original formula and use 0 for tax. But if our task is valuation, I think there are some better options.

1, simpliest, we don’t use fcff

2, use normalize version of fcff

3, make cash flow projection until fcff turns positive.

Cheers mates. It was not for valuation purposes. So it works. Thanx

I don’t think the formula changes… It simply means there may be a neg cash flow

Should be plus dep(tax rate)