NET INCOME / REINVESTMENT / NET DEBT
Estimate FCFE after net capital spending, working capital, and debt cash flows. Review the entered period, benchmark, and risk assumptions alongside the result.
METHOD / WORKED EXAMPLE
FCFE starts from earnings available to equity but recognizes that asset reinvestment, working capital, and net borrowing change the cash potentially available to shareholders.
WORKED DEFAULT
For $1 million net income, $400,000 capex, $250,000 depreciation, $100,000 working-capital increase, $200,000 new debt, and $150,000 repayment, FCFE is $800,000.
READ THE RESULT
Positive FCFE is potential equity cash flow under the entered classifications, not a promise of dividends. Management may retain cash, repurchase shares, acquire assets, or alter financing.
ASSUMPTIONS AND LIMITS
Use consistent statement periods and classifications; this reconciliation does not determine dividends, equity value, or financing capacity.
COMMON QUESTIONS
Depreciation reduced accounting income but is not itself a current-period cash outflow. FCFE therefore subtracts capital expenditure and adds depreciation back, commonly shown as subtracting net capital expenditure. This does not mean depreciation is free cash: assets may require replacement, and capex classifications and maintenance needs should be reviewed over a consistent period.
Enter an increase in non-cash operating working capital as positive because it uses cash and is subtracted. Enter a release as negative, which increases FCFE. Exclude cash, marketable securities, and interest-bearing debt under the standard operating definition. Reconcile receivables, inventory, and non-debt operating liabilities to avoid mixing financing flows into this line.
No. FCFE estimates cash potentially available after entered reinvestment and debt flows. Actual dividends and repurchases depend on management policy, legal restrictions, liquidity reserves, covenants, financing plans, acquisitions, and future operating needs. For valuation, forecast internally consistent future FCFE and discount it at a matching cost of equity rather than capitalizing one period mechanically.
RELATED TOOLS
Use boundary
Start with net income, subtract net capital expenditure and non-cash working-capital investment, then add net debt issued.
FCFE = net income - (capital expenditure - depreciation) - change in non-cash working capital + new debt - debt repayment.