In corporate finance, free cash flow to equity (FCFE) is a metric of how much cash can be distributed to the equity shareholders of the company as dividends or stock buybacks—after all expenses, reinvestments, and debt repayments are taken care of.
[1][2] The FCFE is usually calculated as a part of DCF or LBO modelling and valuation.
where: Like FCFF, the free cash flow to equity can be negative.
If FCFE is negative, it is a sign that the firm will need to raise or earn new equity, not necessarily immediately.
Some examples include: There are two ways to estimate the equity value using free cash flows: