Free Cash Flow to Equity Calculator
From net income, add back non-cash items and subtract capital expenditure, changes in net working capital and net debt repayment, to get the cash truly available to shareholders.
Input Data
Results
At a glance:FCFE = net income + depreciation & amortisation − capital expenditure − increase in net working capital + net new debt. It is the levered free cash flow for equity holders: start from net income (after interest), add back non-cash D&A, subtract CapEx and the cash tied in net working capital, then add net new debt (new borrowings − repayments). The result is the cash truly available to common shareholders for dividends or buybacks — the basis for dividend capacity and equity DCF (at the cost of equity). The increase in net working capital 'uses cash' so is subtracted; net new debt funds cash so is added. Negative FCFE means the firm needs external equity or more debt to sustain.
Formula
FCFE = net income + D&A − CapEx − Δ net working capital + net new debt.
Δ net working capital increase = cash outflow (−); net new debt = new − repayments (+).
How to Use
- Enter net income and D&A.
- Enter CapEx, the change in net working capital, and net new debt.
- View the FCFE.
FCFE at net income HK$500,000 and D&A HK$100,000, CapEx HK$200,000
| Δ Net working capital | Net new debt | FCFE |
|---|---|---|
| 0 | 0 | 400,000 |
| 50,000 | 0 | 350,000 |
| 0 | 50,000 | 450,000 |
| 50,000 | 50,000 | 400,000 |
FCFE = 500,000 + 100,000 − 200,000 − ΔNWC + net debt. ΔNWC increase cuts FCFE; net new debt adds to it. Sensitivities show how working-capital and debt flows move shareholder cash.
Case Studies
Case 1: FCFE and dividend capacity
Firm: net income HK$500,000, D&A HK$100,000, CapEx HK$200,000, no change in NWC, new debt HK$50,000.
FCFE = 500,000 + 100,000 − 200,000 − 0 + 50,000 = HK$450,000.
Interpretation: the cash truly available to equity holders is HK$450,000 — the ceiling for sustainable dividends/buybacks. If it pays HK$300,000 dividend, HK$150,000 can repay debt or reinvest. FCFE is the shareholder-side levered cash flow, the basis for dividend capacity and equity valuation.
Case 2: Working capital and debt swings
Same firm but NWC rises HK$50,000 (stocking up), new debt HK$50,000 (extra borrow). FCFE = 500,000 + 100,000 − 200,000 − 50,000 + 50,000 = HK$400,000.
The NWC rise cut HK$50,000 (cash tied in inventory), but HK$50,000 net new debt offset it, so FCFE still HK$400,000.
Interpretation: FCFE is sensitive to working-capital and debt flows — a levered, inventory-building firm's shareholder cash shifts with these. Read trend and reason; negative FCFE means the firm needs external equity or more debt.
FAQ
FCFE vs FCFF?
FCFF (unlevered FCF) is before interest, for all capital providers (equity + debt), used in firm valuation at WACC. FCFE (levered) is after interest and net debt repayment, for shareholders only, used in equity valuation at the cost of equity. FCFF = FCFE + after-tax interest − net new debt.
Why add net new debt?
Because FCFE is the cash available to shareholders. New debt puts cash in (funding), so add it; debt repayment uses cash, so subtract it. Net new debt = new borrowings − repayments. It reflects the firm funding equity needs partly by debt changes. This is the levered version, so debt flows are included.
Why subtract the change in net working capital?
An increase in net working capital (more inventory/receivables, less payables) ties up cash, so it is a use; a decrease releases cash. So ΔNWC increase is subtracted, decrease added — same as in FCFF, because working capital funds operations regardless of capital structure.
What does negative FCFE mean?
FCFE < 0 means after investing and debt repayment the firm cannot self-fund equity needs — it must issue shares or borrow more, or cut dividends/investment. Mature firms with persistent negative FCFE are weak; growth firms may be temporarily negative from expansion. Judge with trend and the reason.
Where to find the inputs for a HK-listed firm?
HK-listed firms file annual/interim reports on HKEXnews. Net income and D&A from the income statement/notes; CapEx from the cash flow statement's investing section ('purchase of PPE'); changes in net working capital from the operating section (inventory, receivables, payables); net new debt from notes (borrowings movements). Assemble per the formula for FCFE. For formal analysis use audited statements; this is educational/estimation only.
Related Tools
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.