Free Cash Flow to Equity

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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 ?

The cash flows after debt payments and reinvestment needs are free cash flows to equity, and the discount rate that reflects just the cost of equity financing is the cost of equity.

We then consider broader definitions of cash flows to equity, by fist including stock buybacks in cash flows to equity and by then expanding out analysis to cover potential dividends or free cash flows to equity.

Estimates of free cash flows to equity and the firm remain estimates and conservative investors can reasonably argue that they cannot lay claim on these cash flows.

As a consequence, the free cash flows to equity at these firms exceed dividends and large cash balances build up.