Financial Modeling
Bridge FCFF to FCFE
What you will learn
Reconcile cash for all capital providers with cash available to equity.
FCFE = FCFF − after-tax interest + net borrowing
FCFF is before payments to debt providers. To reconcile to FCFE in the simple case, deduct after-tax interest and add net debt issuance. Net borrowing equals new debt less principal repayments. Discount cash flow using the required return of the corresponding investors, with risk, currency and leverage assumptions aligned. A fictional utility has ₹50 crore FCFF, ₹6 crore after-tax interest and ₹4 crore net borrowing. FCFE is ₹48 crore.
A fictional utility has ₹50 crore FCFF, ₹6 crore after-tax interest and ₹4 crore net borrowing. FCFE is ₹48 crore.
FCFF is before payments to debt providers. To reconcile to FCFE in the simple case, deduct after-tax interest and add net debt issuance. Net borrowing equals new debt less principal repayments. Discount cash flow using the required return of the corresponding investors, with risk, currency and leverage assumptions aligned. A fictional utility has ₹50 crore FCFF, ₹6 crore after-tax interest and ₹4 crore net borrowing. FCFE is ₹48 crore.
Which rate matches equity cash flow?