Free cash flow to equity

A common calculation starts with earnings after interest and tax, adds non-cash charges, deducts capital expenditure and increases in working capital, and adds new borrowing less debt principal repayments. Ensure preference or other claims are handled consistently where present. Discount FCFE at an appropriate cost of equity to estimate equity value. Unlike FCFF, it already reflects debt financing, so debt is not then mechanically deducted again from the resulting equity value. Forecast financing policy carefully because changes in borrowing affect both FCFE and shareholder risk.