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How to understand FCFF & FCFE?

幫考網(wǎng)校2020-10-13 14:17:42
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FCFF (Free Cash Flow to Firm) and FCFE (Free Cash Flow to Equity) are two important concepts in finance that are used to measure a company's financial performance and the cash flow available to its investors.

FCFF is the cash flow available to all investors in a company, including both equity and debt holders. It represents the cash generated by a company's operations that is available to be distributed to all investors after accounting for all capital expenditures and debt payments. FCFF is calculated as:

FCFF = Net Income + Non-Cash Expenses - Capital Expenditures - Changes in Working Capital - Interest Expense x (1 - Tax Rate)

FCFE, on the other hand, measures the cash flow available to a company's equity holders after accounting for all capital expenditures, debt payments, and dividends paid to preferred shareholders. FCFE is calculated as:

FCFE = Net Income - Capital Expenditures + Depreciation - Changes in Working Capital - Debt Repayments + New Debt Issued - Preferred Dividends

In summary, FCFF measures the cash flow available to all investors, while FCFE measures the cash flow available to equity investors only. Both metrics are important for investors to understand a company's financial health and its ability to generate cash flow for its investors.
幫考網(wǎng)校
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