FCFE (Free Cash Flow to Equity) Calculator

Free Cash Flow to Equity (FCFE) is the free cash flow remaining for shareholders after all operating outflows, capital expenditure, and payments to creditors are accounted for, but including cash flows from debt financing activities. In short: FCFE measures the cash available in principle to the company’s owners. Example: a company with FCFF 500, net borrowing 100, interest expense 80, and a 25% tax rate has FCFE = 500 + 100 − 80 × (1 − 0.25) = 540. The numbers on this page are educational estimates, not investment advice.

From FCFF, the formula is: FCFE = FCFF + net borrowing − interest expense × (1 − tax rate). Net borrowing is newly issued debt minus debt repayments. Interest is multiplied by (1 − tax) because interest expense reduces taxes (tax shield), so only the after-tax portion of interest reduces shareholder cash. Verified example: 500 + 100 − 80 × (1 − 0.25) = 500 + 100 − 60 = 540.

From operating cash flow (CFO), the formula is: FCFE = CFO − capital expenditure (capex) + net borrowing. Net borrowing = debt issued − debt repaid. Verified example: CFO 1,000 − capex 300 + (500 − 400) = 1,000 − 300 + 100 = 800. Both formula paths (from FCFF or from CFO) produce the same FCFE figure when inputs are consistent, since they differ only in their starting point.

FCF (free cash flow) is the general term for free cash flow. FCFF (free cash flow to firm) is free cash for all capital providers — shareholders and creditors — computed before interest payments and debt activities. FCFE is free cash specifically for shareholders: FCFF minus after-tax interest plus net borrowing. The logical order: CFO − capex = FCF/FCFF, then FCFF − after-tax interest + net borrowing = FCFE.

Negative FCFE means the cash available to shareholders is below zero for that period — for example the company is investing heavily (high capex) or repaying more debt than it issues. Verified example: FCFF −200 + net borrowing 50 − after-tax interest 78 = −228. Negative FCFE is not automatically bad news: growing companies often deliberately burn cash for expansion. What matters is the multi-year pattern and where the deficit comes from, not a single negative number alone.

Not always. FCFE measures the cash available to shareholders, but a company may choose to retain cash for expansion, repay debt, buy back shares, or build reserves. Dividends are a management and board decision, not an obligation that automatically follows FCFE. Positive, stable FCFE does leave room for dividends, while dividends paid above FCFE persistently cannot be sustained from internal cash.

The single-stage Gordon growth model estimates equity value as FCFE ÷ (equity discount rate − growth rate), requiring the discount rate to exceed growth. Verified example: FCFE 540, discount rate 10%, growth 3% → 540 ÷ (0.10 − 0.03) = 7,714.29. Key limits: the model is highly sensitive to small gaps between discount and growth, assumes constant growth forever, and does not reflect business-specific risk. Use it as a valuation-comprehension exercise, not as a buy-or-sell decider.