1. What is Free Cash Flow to Equity (FCFE)?

FCFE represents the cash flow available to equity shareholders after all expenses, reinvestment, and debt obligations. It's a key metric in equity valuation and financial analysis.

2. How Does the Calculator Work?

The calculator uses the FCFE formula:

Where:

• \( \text{Net Income} \) — Company's net profit after taxes
• \( \text{Net CapEx} \) — Capital expenditures minus depreciation
• \( \Delta\text{Working Capital} \) — Change in working capital (can be positive or negative)
• \( \text{Net Borrowing} \) — New debt issued minus debt repayments

Explanation: The formula shows how much cash is available to shareholders after accounting for reinvestment needs and debt financing activities.

3. Importance of FCFE Calculation

Details: FCFE is crucial for dividend policy decisions, stock valuation (Discounted Cash Flow models), and assessing a company's ability to grow without additional equity financing.

4. Using the Calculator

Tips: Enter all values in USD. Net Income and Net CapEx should be positive values. ΔWorking Capital and Net Borrowing can be positive or negative depending on whether working capital increased/decreased or whether the company borrowed/repaid debt.

5. Frequently Asked Questions (FAQ)

Q1: How is FCFE different from FCFF?
A: FCFF (Free Cash Flow to Firm) is available to all investors (debt and equity), while FCFE is only available to equity holders after debt obligations.

Q2: What does negative FCFE mean?
A: Negative FCFE indicates the company needs additional equity financing as its operations and investments aren't generating enough cash for shareholders.

Q3: When is FCFE most useful?
A: FCFE is particularly valuable for valuing firms that pay dividends or have stable leverage ratios.

Q4: How does depreciation affect FCFE?
A: Depreciation is added back in Net Income (since it's non-cash) but is already accounted for in Net CapEx (CapEx minus Depreciation).

Q5: Can FCFE be higher than net income?
A: Yes, when net capital expenditures are low, working capital decreases, or the company borrows significantly.