Sunday, 30 April 2017

The Free-Cash-Flow to-Equity (FCFE) Model

Many analysts assert that a company's dividend-paying capacity should be reflected in its cash flow estimates instead of estimated future dividends.

FCFE is a measure of dividend paying capacity.

It can also be used to value companies that currently do not make any dividend payments.

FCF can be calculated as:

FCFE = CFO - FC Inv + Net borrowing

Analysts may calculate the intrinsic value of the company's stock by discounting their projections of future FCFE at the required rate of return on equity.


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