Free Cash Flow To Equity Calculator

Background.

Net income tells shareholders what a company earned under accounting rules. Free cash flow to equity tells them how much cash was actually left over for them once the business had paid for the equipment and inventory it needs and had settled up with its lenders. The two can be far apart. A manufacturer building a new plant can report a healthy profit while every dollar of it goes into concrete and machinery, leaving nothing that could be paid out.

FCFE starts from net income and walks to cash in four moves. Depreciation and amortization are added back, because they reduce profit without any money leaving the company that year. Capital expenditure is subtracted, because buying buildings and machines is real cash out that the income statement only recognizes gradually. An increase in working capital — more stock on the shelves, more customer invoices still unpaid — is subtracted because that cash is tied up. Finally, net borrowing is added: interest has already been charged in net income, so cash raised from new loans, less repayments, is available to the owners.

Analysts use the result in two ways. Discounted at the cost of equity, a forecast of FCFE values the shares directly, without first valuing the whole firm and subtracting its debt. Set beside the dividends and buybacks a company actually pays, it shows whether those payouts are covered by cash generation or financed by running down reserves.

Treat the borrowing term with some suspicion. Any company can lift a single year's FCFE by taking on debt, and that is not the same as earning it. The figures here are single-period totals; preferred dividends, acquisitions, lease adjustments and the cleaning-up of one-off items are left for you to handle before entry.

What is free cash flow to equity calculator?

Free cash flow to equity (FCFE) is the cash a company generates in a period that could be distributed to its common shareholders after operating costs, interest and taxes are paid, after the investment in fixed assets and working capital the business needs, and after net payments to or from lenders. It is a capacity to pay, not a payment: the board may hand out all of it, some of it or none of it as dividends or share buybacks, and whatever remains stays in the company as cash.

How to use this calculator.

1. 01Take net income for the period from the income statement and enter a loss as a negative number. Preferred dividends are not deducted here, so if the company has preferred shares, subtract their dividends from net income first.
2. 02Enter depreciation and amortization from the top of the operating section of the cash flow statement. Other non-cash charges that reduced net income, such as impairments, are added back the same way and can be included in this field.
3. 03Enter capital expenditure as a positive number; it is usually labelled purchases of property, plant and equipment in the investing section. The field does not accept negatives, so years of net asset sales cannot be entered.
4. 04For increase in working capital, enter how much inventory and receivables grew minus how much payables grew, leaving out cash and short-term debt. A decrease goes in as a negative number and raises FCFE.
5. 05Enter net borrowing as new debt raised minus debt repaid during the same period; a year of net repayment is a negative number.

The formula.

FCFE = NI + D&A − CapEx − ΔWC + NB. NI is net income, which has already absorbed operating costs, interest and tax. D&A is added back because it allocates past spending across years rather than paying anything out now. CapEx, cash spent on long-lived assets, is subtracted because it is a real outflow the income statement spreads over future periods. ΔWC is the increase in working capital: when inventory and receivables grow faster than payables, cash is locked up, so the increase is subtracted, and a decrease entered as a negative adds cash back. NB is net borrowing, new debt less repayments, added because lender money is available to owners once interest has been charged in NI. Every term carries a weight of one, so a dollar change in any input moves FCFE by exactly a dollar; for capital-intensive or heavily financed companies, capital spending and borrowing tend to be the swing items.

A worked example.

Frequently asked questions.

References& sources.

1. [1]OpenStax, Rice University. Principles of Finance, 2022. Chapters 6–10. Retrieved 2026-08-06.
2. [2]U.S. Internal Revenue Service. Tax guidance current 2026. Official forms, instructions and tax topics. Retrieved 2026-08-06.
3. [3]U.S. Securities and Exchange Commission. Investor.gov current 2026. Investment products and risk. Retrieved 2026-08-06.