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Free Cash Flow to Equity (FCFE) Calculator

Calculate free cash flow to equity from net income, capital expenditures, and changes in working capital for equity valuation.

Free Cash Flow to Equity (FCFE) Calculator

Calculate free cash flow to equity from net income, capital expenditures, and changes in working capital for equity valuation.

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Guide

Understanding free cash flow to equity and equity valuation

  • FCFE = Net Income + Depreciation - Capital Expenditures - Change in Working Capital + Net Borrowing. It represents cash available to equity holders.
  • FCFE is used in equity valuation (DCF models) because it represents the cash that can be paid to shareholders as dividends or used for share buybacks.
  • Positive FCFE indicates the company generates cash after all expenses and investments, allowing dividends, buybacks, or growth investments.
  • Negative FCFE indicates the company requires external financing (debt or equity) to fund operations or investments, which may not be sustainable long-term.
  • FCFE differs from Free Cash Flow (FCF) by accounting for net borrowing. FCFE focuses on equity holders, while FCF focuses on all investors.

Frequently Asked Questions

Free cash flow to equity, equity valuation, and cash flow analysis

What is free cash flow to equity (FCFE)?

FCFE is the cash available to equity holders after all expenses, capital expenditures, working capital changes, and debt obligations. It represents cash that can be paid as dividends or used for share buybacks.

How is FCFE calculated?

FCFE = Net Income + Depreciation - Capital Expenditures - Change in Working Capital + Net Borrowing. It starts with net income and adjusts for non-cash items, investments, and financing.

What is the difference between FCFE and free cash flow (FCF)?

FCFE focuses on equity holders and accounts for net borrowing, while FCF focuses on all investors (equity + debt) and doesn't account for financing. FCFE = FCF - Net Debt Repayment + Net Borrowing.

Why is FCFE important for equity valuation?

FCFE represents the cash available to equity holders, making it the appropriate cash flow metric for equity valuation in DCF models. It shows what can be paid to shareholders.

What does positive FCFE mean?

Positive FCFE indicates the company generates cash after all expenses and investments, allowing dividends, share buybacks, or growth investments. It's a sign of financial strength and value creation.

What does negative FCFE mean?

Negative FCFE indicates the company requires external financing (debt or equity) to fund operations or investments. This may be acceptable for growth companies but can be unsustainable long-term.

How does net borrowing affect FCFE?

Net borrowing (new debt - debt repayment) increases FCFE because borrowing provides cash to equity holders. However, excessive borrowing increases financial risk and may not be sustainable.

How is FCFE used in DCF valuation?

FCFE is discounted at the cost of equity to calculate equity value. The DCF model projects future FCFE and discounts it to present value, representing the intrinsic value of equity.

What is the relationship between FCFE and dividends?

FCFE represents the maximum cash available for dividends. Companies can pay dividends up to FCFE, but may retain some FCFE for growth investments. Dividends exceeding FCFE require external financing.

How do I interpret FCFE trends?

Growing FCFE indicates improving cash generation and value creation. Declining or negative FCFE may indicate financial stress or heavy investment. Compare FCFE to net income to assess cash quality and sustainability.

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Free Cash Flow to Equity (FCFE) Calculator

Calculate free cash flow to equity from net income, capital expenditures, and changes in working capital for equity valuation.

How to use Free Cash Flow to Equity (FCFE) Calculator

Step-by-step guide to using the Free Cash Flow to Equity (FCFE) Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Free Cash Flow to Equity (FCFE) Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Free Cash Flow to Equity (FCFE) Calculator is designed to be user-friendly and provide instant calculations.

Is the Free Cash Flow to Equity (FCFE) Calculator free to use?

Yes, the Free Cash Flow to Equity (FCFE) Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Free Cash Flow to Equity (FCFE) Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Free Cash Flow to Equity (FCFE) Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.