Fundamental Glossary / Cash Flow Metrics
Free Cash Flow to Equity (FCFE)
Free cash flow left for shareholders after interest, debt repayments, and after any new borrowing.
Formula
FCFF - after-tax interest + net borrowing. Or: operating cash flow - capex + net borrowing.
What it means
FCFE is the equity holder's cash flow. It is discounted at the cost of equity, not at WACC.
Net borrowing increases FCFE because the new debt is cash in. That is only sustainable if the debt can be serviced.
How to read it
For a stable firm, FCFE over time should be in the neighbourhood of dividends plus buybacks. A dividend well above FCFE is being funded by the balance sheet.
What to watch
A lumpy repayment year makes FCFE look terrible, and a drawdown year makes it look wonderful. Smooth the financing items or show them separately so the operating engine is visible.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.