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    DRIVERS & SCENARIOS

    Build a forecast
    you can explain.

    See how sales growth, operating margins, capital spending and working capital affect annual free cash flow to the firm (FCFF). Use the forecast to compare operating assumptions before taking the cash flows into a DCF valuation.

    Manual inputsNon-financial operating companies

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    Your manual baseline and drivers

    Start with the example, then change the inputs.

    Your manual baseline and drivers

    Start with revenue and operating working capital for the last complete fiscal year, then enter assumptions for each forecast year. The starting values are illustrative; the tool does not load company financial statements.

    One nominal currency; actual units, no conversion.
    Complete annual period before the forecast.
    Sales for the complete baseline year, in the selected currency. Use the same amount scale throughout.
    Exclude cash and interest-bearing debt. May be negative.

    Annual driver schedule

    Enter 10 for 10%. EBIT margin is operating profit after depreciation and amortization (D&A), divided by sales. D&A and capital expenditure (CAPEX) are annual currency amounts. Operating WC % is year-end operating working capital divided by annual sales. Add up to 50 full years.

    Manual forecast assumptions by fiscal year
    YearGrowth %EBIT margin %Tax %D&ACAPEXOperating WC %
    2026
    2027
    2028
    2029
    2030

    5 forecast years. Keep 1–50 annual rows.

    Calculated in this browser. Your inputs stay in memory and are cleared on reload.

    THE METHOD

    Trace operating profit through to cash.

    Revenueₜ = prior revenue × (1 + growth)
    EBIT = revenue × operating margin
    Modeled tax = max(EBIT, 0) × tax rate
    FCFF = EBIT − modeled tax + D&A − CAPEX − Δ operating WC

    Operating working capital is forecast revenue times the supplied WC/revenue ratio. Its change is measured from the supplied manual baseline, then each prior forecast year. Increasing working capital consumes cash; a release adds cash.

    Illustrative worked example

    Baseline revenue is 1,000 and operating WC is 100. Year one grows revenue 10% to 1,100, with 20% EBIT margin, 25% modeled tax, D&A 20, CAPEX 30 and WC/revenue 10%.

    FCFF = 220 − 55 + 20 − 30 − 10 = 145. Year two keeps revenue at 1,100, uses −10% EBIT margin and 8% WC/revenue, producing FCFF of −98. Currency values are shown to 2 decimals.

    What this forecast leaves out

    • Non-financial operating companies only. Banks and insurers need different models.
    • Tax policy: no refund on losses and no loss carryforward. This is not a jurisdictional tax model.
    • D&A and CAPEX are supplied schedules. There is no inferred asset roll-forward, financing plan or balanced three-statement model.
    • No startup reserve, cash runway, funding need or payback is calculated. No reserve is deducted again from FCFF.
    • Enter financing and debt payments in a separate cash plan: FCFF measures cash available to all capital providers before those payments.

    Sources: Damodaran’s FCFF definition, operating working capital and tax assumptions.