Free Cashflow to Equity (FCFE)
The free cash flow to equity (FCFE) metric explains the availability of cash after all deduction of expenses, for the equity shareholders as dividends and stock buybacks. It is also known as levered cash flow. It is often used by analysts to determine the value of a company.
FCFE= Cash from operations-Capital Expenditure+Net Debt Issued
Or
FCFE= Net income+ Depreciation & Amortization expenses- change in Working capital-capital expenditure+Net Debt issued
Alternatively, FCFE can be calculated as follows:
| Details | Amount |
| Earnings before interest and tax (EBIT): | xxx |
| Less Tax | (xxx) |
| Add back: Depreciation / Amortization | xxx |
| Less: Working capital increases: | (xxx) |
| Less: Working capital increases | (xxx) |
| Less: capital expenditure, If Any | (xxx) |
| Free cash flow to the firm | XXX |
| Minus: Interest payments | (xx) |
| Equals: Free cash flow to equity | XXX |
FCFF vs FCFE
FCFF stands for Free cash flow to the firm and represents cash flow which is available for all stakeholders i.e. both equity and debt. Whereas FCFE stands for Free Cash flow to equity only.
Talking preciously both have differences in Interest expenses and their impact on taxes because FCFF considers debt also. If a company is having debt, FCFF would be higher as compared to FCFE.