Are you an EPFL student looking for a semester project?
Work with us on data science and visualisation projects, and deploy your project as an app on top of Graph Search.
Concept
Free cash flow to equity
Summary
In corporate finance, free cash flow to equity (FCFE) is a metric of how much cash can be distributed to the equity shareholders of the company as dividends or stock buybacks—after all expenses, reinvestments, and debt repayments are taken care of. It is also referred to as the levered free cash flow or the flow to equity (FTE). Whereas dividends are the cash flows actually paid to shareholders, the FCFE is the cash flow simply available to shareholders. The FCFE is usually calculated as a part of DCF or LBO modelling and valuation.
Assuming there is no preferred stock outstanding:
where:
FCFF is the free cash flow to firm;
Net Borrowing is the difference between debt principals paid and raised;
Interest*(1–t) is the firm's after-tax interest expense.
or
or
where:
NI is the firm's net income;
D&A is the depreciation and amortisation;
b is the debt ratio;
Capex is the capital expenditure;
ΔWC is the change in working capital;
Net Borrowing is the difference between debt principals paid and raised;
In this case, it is important not to include interest expense, as this is already figured into net income.
Free cash flow to firm (FCFF) is the cash flow available to all the firm's providers of capital once the firm pays all operating expenses (including taxes) and expenditures needed to support the firm's productive capacity. The providers of capital include common stockholders, bondholders, preferred stockholders, and other claimholders.
Free cash flow to equity (FCFE) is the cash flow available to the firm's common stockholders only.
If the firm is all-equity financed, its FCFF is equal to FCFE.
FCFF is the cash flow available to the suppliers of capital after all operating expenses (including taxes) are paid and working and fixed capital investments are made.
It is calculated by making the following adjustments to EBIT.
Like FCFF, the free cash flow to equity can be negative. If FCFE is negative, it is a sign that the firm will need to raise or earn new equity, not necessarily immediately.
Official source
About this result
This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.