Question

What are the major differences between FCFF and FCFE? How would I know which one to use?

Answer 1

FCFF is free cash flow available to the firm (ie all investors - debt, preferred, equity, etc.). FCFE is free cash flow to the equity. If you are looking to understand how much c/f is available to all investors, to say value the entire firm/assets, then use FCFF. If just want to understand how much cash is available to the equity shareholders after interest is paid, then use FCFE.