Free Cash Flow to Equity

The cash that a company has on hand after all debt service and expenses have been paid and reinvestment has been made. The free cash flow to equity is calculated thusly:

FCFE = Net income + newly borrowed debt - capital expenditures - change in net working capital - debt service.

FCFE is a measure of a company's value and is considered an alternative to the dividend discount model.

References in periodicals archive ?

Acxiom's free cash flow to equity grew 160 percent to $38.4 million.

Acxiom Corp. turns profit for 4th quarter, fiscal '08

* It yields realistic estimates of value per share for firms that do pay out their free cash flow to equity as dividends, at least on average over time.

Practitioners have long used variants of free cash flow to equity to judge the attractiveness of companies as investments.

2 Discounted cash flow valuation

Two of the most common are dividends and free cash flow to equity. Dividends are cash flows that are actually distributed by the firm to shareholders.

One of the most frequently used discounted cash flow models is based on free cash flow to equity rather than dividends.