Valuation forms an important part of Fundamental Analysis. Free Cash Flow to Firm (FCFF) is one of the most widely used tools which is used to analyze the free cash available in the company by taking into account the free cash flow generated by the company in the future and arriving at the present value of the forecasted cash flows as on today.

It involves a lot of forecasting and estimation based on the past and present financial and economic environment of the business.

To forecast the cash flow one needs to study the business fundamentals thoroughly in order to understand at what rate will the cash flows grow or fall in the coming next years.

It is an essential step in the process of DCF valuation.

Forecasting is not an easy task as it is the essence of a good valuation model.

The better one can estimate the future cash flows and the financials, the better and closest it brings to the actual value of the firm.