Free Cash Flow to Equity (FCFE) Calculator
This tool calculates Free Cash Flow to Equity (FCFE) using a common formula:
FCFE = Cash Flow from Operations - Capital Expenditures + Net Borrowing
Enter the required values below to calculate the Free Cash Flow available to the company's equity holders after all expenses, reinvestment, and debt payments/receipts.
Enter Financial Data
Understanding Free Cash Flow to Equity (FCFE)
What is FCFE?
Free Cash Flow to Equity (FCFE) represents the cash flow available to the company's equity holders after accounting for all operating expenses, capital expenditures, and debt financing (principal and interest payments, and proceeds from new debt). It's a measure of how much cash a company can return to its shareholders (through dividends or share repurchases) without impairing its operations or growth prospects.
Importance of FCFE
FCFE is a crucial metric for investors, especially those valuing companies based on their cash flow-generating ability. It provides insight into a company's financial health and its potential to distribute cash to shareholders. It's often used in discounted cash flow (DCF) models to estimate the value of a company's equity.
FCFE Formula (Basic)
As used in this calculator, the basic formula is:
FCFE = Cash Flow from Operations (CFFO) - Capital Expenditures (CapEx) + Net Borrowing
- Cash Flow from Operations (CFFO): Found on the Statement of Cash Flows, this is the cash generated or used by the core business activities.
- Capital Expenditures (CapEx): Also found on the Statement of Cash Flows (usually as a negative number under Investing Activities), this is money spent on maintaining or expanding the company's asset base. It's entered as a positive number in the calculator inputs for subtraction in the formula.
- Net Borrowing: The difference between cash received from issuing new debt and cash paid for repaying existing debt principal. This is found under Financing Activities on the Statement of Cash Flows (new debt proceeds are positive, debt repayments are negative). Enter the *net* amount directly.
Note: A more detailed FCFE formula starts with Net Income and makes various adjustments, but the formula based on CFFO, CapEx, and Net Borrowing is a widely used and simpler approach when CFFO data is readily available.
FCFE Examples
Here are 10 examples demonstrating the FCFE calculation:
Example 1: Profitable Growth Company
Scenario: A growing tech company with strong operating cash flow, but high reinvestment and some debt repayment.
Known Values:
CFFO = $500,000
CapEx = $200,000
Net Borrowing = -$50,000 (repaid $50,000 more debt than new debt issued)
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $500,000 - $200,000 + (-$50,000)
Result: FCFE = $250,000
Conclusion: The company generated $250,000 in cash flow available to equity holders after funding operations, investing heavily, and paying down some debt.
Example 2: Mature Stable Company
Scenario: A stable utility company with consistent cash flow, low reinvestment needs, and stable debt levels.
Known Values:
CFFO = $1,000,000
CapEx = $150,000
Net Borrowing = $0
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $1,000,000 - $150,000 + $0
Result: FCFE = $850,000
Conclusion: The company has substantial cash flow available to shareholders due to high operating cash flow and low reinvestment needs.
Example 3: Company Taking on Debt
Scenario: A company taking out a significant loan to fund expansion, despite moderate operating cash flow and CapEx.
Known Values:
CFFO = $300,000
CapEx = $100,000
Net Borrowing = $200,000
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $300,000 - $100,000 + $200,000
Result: FCFE = $400,000
Conclusion: The FCFE is boosted by the inflow of cash from new debt, even after covering operations and CapEx.
Example 4: High Reinvestment Phase
Scenario: A company investing heavily in new facilities, with operating cash flow just covering CapEx and some debt repayment.
Known Values:
CFFO = $800,000
CapEx = $900,000
Net Borrowing = -$100,000
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $800,000 - $900,000 + (-$100,000)
Result: FCFE = -$200,000
Conclusion: The negative FCFE indicates the company used more cash for investments and debt than it generated from operations. This isn't necessarily bad if it's a strategic growth phase.
Example 5: Company Paying Off Debt
Scenario: A company with solid operating cash flow using a significant portion of it to aggressively pay down debt principal.
Known Values:
CFFO = $600,000
CapEx = $150,000
Net Borrowing = -$300,000
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $600,000 - $150,000 + (-$300,000)
Result: FCFE = $150,000
Conclusion: While operating cash flow was high, paying down debt reduced the cash available to equity holders.
Example 6: Low Operating Cash Flow
Scenario: A company struggling with operations, generating low cash flow, while still needing to make some capital investments and debt payments.
Known Values:
CFFO = $50,000
CapEx = $80,000
Net Borrowing = -$20,000
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $50,000 - $80,000 + (-$20,000)
Result: FCFE = -$50,000
Conclusion: Negative FCFE due to insufficient operating cash flow to cover essential spending and debt obligations.
Example 7: Significant New Debt for Expansion
Scenario: A mature company uses substantial new debt to fund a large expansion project.
Known Values:
CFFO = $700,000
CapEx = $500,000
Net Borrowing = $600,000
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $700,000 - $500,000 + $600,000
Result: FCFE = $800,000
Conclusion: New debt significantly increases FCFE, providing substantial cash for equity holders, though it increases financial risk.
Example 8: Minimal Activity
Scenario: A small business with very little activity in a period.
Known Values:
CFFO = $10,000
CapEx = $0
Net Borrowing = $0
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $10,000 - $0 + $0
Result: FCFE = $10,000
Conclusion: All operating cash flow is available to equity holders as there were no capital investments or debt changes.
Example 9: Negative Operating Cash Flow
Scenario: A startup with negative operating cash flow, relying on funding to cover expenses and minimal CapEx.
Known Values:
CFFO = -$150,000
CapEx = $20,000
Net Borrowing = $180,000
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = -$150,000 - $20,000 + $180,000
Result: FCFE = $10,000
Conclusion: Despite negative CFFO and some CapEx, new debt brought the FCFE slightly positive, indicating just enough cash was raised to cover needs with a small surplus.
Example 10: Asset Sales Exceed CapEx (Uncommon for standard CapEx)
Scenario: While CapEx input is usually non-negative for purchases, let's consider a scenario where *Net Investment in Assets* was negative (more assets sold than bought). However, this calculator uses *CapEx* specifically, which is usually asset *purchases*. Sticking to the definition of CapEx as spending *outwards*: A company selling off a division, but still having some minimal CapEx elsewhere and debt repayment.
Known Values:
CFFO = $400,000
CapEx = $50,000
Net Borrowing = -$100,000
*(Note: Cash from selling assets is technically in CFI, not CFFO or CapEx directly in this formula structure. This example assumes standard CapEx input meaning outflow)*
Formula: FCFE = CFFO - CapEx + Net Borrowing
Calculation: FCFE = $400,000 - $50,000 + (-$100,000)
Result: FCFE = $250,000
Conclusion: After covering minimal reinvestment and some debt repayment, a solid amount of cash is available from operations.
Frequently Asked Questions about FCFE
1. What does FCFE stand for?
FCFE stands for Free Cash Flow to Equity.
2. What does FCFE measure?
FCFE measures the cash flow available to the company's shareholders after all operating expenses, capital expenditures (investment in assets), and debt obligations (net of new borrowings) have been met.
3. Why is FCFE important to investors?
FCFE is important because it shows how much cash a company can potentially distribute to its shareholders (via dividends or share buybacks) without harming its ability to continue operations or grow.
4. What is the basic formula for FCFE used here?
The basic formula used in this calculator is: FCFE = Cash Flow from Operations - Capital Expenditures + Net Borrowing.
5. What do positive and negative FCFE mean?
- Positive FCFE: Indicates the company generated more cash from operations and financing activities (considering reinvestment) than needed to maintain operations and debt. This cash is available for distribution to shareholders.
- Negative FCFE: Indicates the company did not generate enough cash from operations and financing to cover its capital expenditures and debt obligations. This might happen during periods of high growth/reinvestment or financial distress.
6. How is Net Borrowing calculated?
Net Borrowing is calculated as the cash received from issuing new debt minus the cash paid for repaying existing debt principal during the period. It's a net figure from the Financing Activities section of the Statement of Cash Flows.
7. What is the difference between FCFE and Free Cash Flow to Firm (FCFF)?
FCFF (Free Cash Flow to Firm) is the cash flow available to *all* the company's capital providers (both debt and equity holders) before any debt payments. FCFE is the cash flow available *only* to equity holders, calculated *after* accounting for debt payments and proceeds.
8. Can Capital Expenditures (CapEx) be negative?
In the context of this FCFE formula (using it as money *spent* on assets), CapEx is typically entered as a non-negative number (0 or positive). If a company sells off more assets than it buys, the *net* investment in assets might be negative on the cash flow statement's investing section, but the standard CapEx input here refers to the money spent outwards.
9. Where can I find the inputs for this calculator?
You can typically find Cash Flow from Operations (CFFO), Capital Expenditures (often labelled as 'Purchase of Property, Plant, and Equipment' or similar), and Net Borrowing (derived from changes in debt balances and debt issuance/repayment line items) on a company's Statement of Cash Flows, usually found in their financial reports.
10. How is FCFE used in company valuation?
FCFE is a key input in the Dividend Discount Model (DDM) and certain types of Discounted Cash Flow (DCF) models used to estimate the intrinsic value of a company's stock. The future FCFE stream is projected and discounted back to the present value.
