Free Cash Flow to Equity (FCFE) DCF Calculator

Core Formula and Rearrangements

FCFE from Net Income:

FCFE = Net Income + Non‑Cash Charges − Capex − ΔWorking Capital + Net Borrowing − Preferred Dividends

FCFE from Cash From Operations:

FCFE = CFO − Capex + Net Borrowing − Preferred Dividends

Starting From

Forecast Years

Shares (millions)

Net Income

Depreciation & Amortization

Other Non‑Cash

Capex

Δ Working Capital

Net Borrowing

Preferred Dividends

Computed Base FCFE (from NI)

Forecast FCFE

Auto‑fill

Constant Growth %

Growth schedule % (CSV per year)

Year	FCFE
1
2
3
4
5

Cost of Equity %

Terminal Method

Perpetual Growth %

Exit P/FCFE Multiple

Non‑Operating Assets (add)

Non‑Operating Liabilities (subtract)

Results

Enter inputs then click Calculate to see PVs, terminal value, equity value, and per‑share outputs.

Starting From Net Income vs CFO

Both routes are equivalent if definitions are clean and consistent. The Net Income path exposes non‑cash add‑backs and working capital explicitly. The CFO path is simpler but depends on statement presentation. Prefer NI when you need granular drivers; prefer CFO when cash flow statements are reliable and stable.

Handling Net Borrowing and Debt Repayments

FCFE belongs to shareholders after debt financing choices. Add net borrowing (new debt less principal repayments); subtract preferred dividends. If leverage policy is targeted to a ratio, forecast net borrowing to maintain that target as the business grows.

Industry Specific Notes

Financials and Banks Caveats

Lending is the operating business, so “debt” is not purely financing. FCFE is tricky because working capital and leverage move with regulatory capital. Use dividend discount or excess returns models; if you use FCFE, anchor on sustainable payout and CET1 targets.

Cyclical and Commodity Businesses

Do not extrapolate peak or trough. Normalize margins and reinvestment over a cycle. Tie Capex to long‑term maintenance plus growth projects, with commodity price scenarios driving working capital and utilization.

Early Stage or High Growth Firms

Explicit multi‑stage growth with fade is essential. Negative FCFE early on can still support value if reinvestment earns returns above the cost of equity. Stress‑test terminal assumptions and dilution from new equity issuance.

Regulated Utilities Considerations

Capex is often set by rate base plans; cost of equity may be guided by regulators. Terminal growth should not exceed regional GDP plus inflation; net borrowing should align with allowed capital structure.

Worked Example

Input Snapshot

Starting from Net Income: NI=1,000; D&A=150; Capex=200; ΔWC=50; Net Borrowing=20; Pref Div=0 → Base FCFE = 920.
Forecast Years: 5; Constant Growth 8%; Cost of Equity 12%.
Terminal: Perpetual growth 3%; Shares: 100.

Step by Step Calculation

Auto‑fill FCFE for each year using base and growth schedule.
Discount each year’s FCFE at (1+Ke)^t.
Terminal value = FCFE₅×(1+g)/(Ke−g); discount back to present.
Sum PVs, add non‑operating assets, subtract non‑operating liabilities.
Divide equity value by shares for per‑share estimate.

Interpretation of Results

Compare per‑share value with market price to assess upside/downside. Sensitize the model by varying growth, cost of equity, and terminal assumptions. Ensure near‑term cash flows align with realistic reinvestment needs.

How To Use This Calculator

Quick Start Instructions

Pick Starting From: Net Income or CFO.
Enter input drivers and choose forecast years.
Toggle Auto‑fill and set growth assumptions or type FCFE manually.
Choose terminal method and enter cost of equity.
Click Calculate to view PVs, equity value, and per‑share outputs.

Data Quality and Common Pitfalls

Ensure ΔWorking Capital sign is correct: increases usually reduce FCFE.
Exclude non‑recurring items from NI/CFO; normalize where needed.
Capex: separate maintenance vs growth when possible.
Terminal growth must be < cost of equity in perpetuity model.
Be consistent about currency and units (e.g., millions).

Exporting and Sharing Results

Use the Download CSV/JSON buttons for reporting. Click Copy Shareable Link to create a URL with your inputs; paste it to reopen the scenario instantly.

FAQs

What discount rate should I use? The cost of equity via CAPM or a build‑up model; sanity check against peer implied returns.
How many years should I forecast? Enough to reach near‑steady economics, commonly 5–10 years depending on growth and reinvestment cycles.
Is FCFE better than DDM? For non‑financials, FCFE often maps better to available cash to equity when dividends differ from capacity.
Can FCFE be negative? Yes—during heavy reinvestment phases. Value can still be positive if future cash returns exceed the cost of equity.
Should I adjust for cash/debt after FCFE DCF? FCFE yields equity value directly; add only non‑operating assets and subtract non‑operating liabilities if material.
What exit multiple is sensible? Use a range around peers’ forward P/FCFE adjusted for growth, risk, and reinvestment needs.
How do I handle equity issuance? Treat expected issuance as negative FCFE (cash outflow to new shareholders) and update share count for per‑share outputs.