This ratio is the enterprise value (EV) of a company divided by its free cash flow (FCF), which refers to cash flow available to all capital providers (both equity and debt providers) of the company. A high EV/FCF may indicate that a company is overvalued, and vice versa.

EV/FCF_{t} = \frac{EV_{t}}{FCF_{t}} = \frac{P_{t} + TD_{t} - Cash_{t} - Investments_{t}}{CFADS_{t} - DS_{t} - Cash_{t-1}}

where:

P_{t} is the equity value of company i at time t
\textit{TD}_{t} is the total debt of the company, including both long-term and short-term debt on the balance sheet
CFADS_{t} is the cash flow available for debt service (free cash flow) at time t
DS_{t} is the senior debt service at time t 
Cash_{t} is the total cash in the bank at time t
Cash_{t-1} is the total cash in the bank at time t 

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