- This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
- You must be logged in to reply to this topic.
Instant Poll - Read and post comments:
Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>
Dividend capacity and FCFE is the same thing right?
the only diff is that often when we calculate FCFE to value the company we are not deducting interest because this is already included in cost of capital in discounting process. However when we need to establish div capacity we need to subtract interest to show money available to shareholders. Is that correct thinking?
They are the same thing.
Free cash flow to equity IS after deducting interest, and is discounted at the cost of equity to get the value of the equity.
(Free cash flows are not the same thing and are before deducting interest, and are discounted at the WACC to get the value of the business).
This is all explained, with examples, in my free lectures.