Free Cash Flow to Equity FCFE (Formula, Examples) | Calculation

In this video on Free Cash Flow to Equity FCFE, We are going to understand this topic in detail including its meaning, Formula, calculation and examples.

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐅𝐫𝐞𝐞 𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 𝐭𝐨 𝐄𝐪𝐮𝐢𝐭𝐲?
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Free Cash Flow to Equity measure how much “cash” a company can return to its shareholders and is calculated after taking care of the taxes, capital expenditure and debt cash flows.


𝐅𝐫𝐞𝐞 𝐂𝐚𝐬𝐡 𝐅𝐥𝐨𝐰 𝐭𝐨 𝐄𝐪𝐮𝐢𝐭𝐲
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FCFE Formula = Net Income + Depreciation & Amortization + Changes in WC + Capex + Net Borrowings


𝐅𝐂𝐅𝐄 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 𝐒𝐭𝐚𝐫𝐭𝐢𝐧𝐠 𝐟𝐫𝐨𝐦 𝐄𝐁𝐈𝐓
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FCFE Formula = EBIT – Interest – Taxes + Depreciation & Amortization + Changes in WC + Capex + Net Borrowings


𝐅𝐂𝐅𝐄 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 𝐒𝐭𝐚𝐫𝐭𝐢𝐧𝐠 𝐟𝐫𝐨𝐦 𝐅𝐂𝐅𝐅
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FCFE Formula = FCFF – [ Interest x (1-tax)]  + Net Borrowings


𝐖𝐡𝐚𝐭 𝐢𝐬 𝐍𝐞𝐠𝐚𝐭𝐢𝐯𝐞 𝐅𝐂𝐅𝐄?
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Negative FCFE can happen due to any or combination of the factors below  –

1. IfCompany is reporting big loss (Net Income is largely negative)
2. If Company makes big capital expense resulting in Negative FCFE
3. Changes in working capital resulting in an outflow
4. Debt is repaid resulting in large cash outflow

To know more about Free Cash Flow to Equity, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞: https://www.wallstreetmojo.com/fcfe-f...

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