What are FCFE and FCFF?

what are free cash flows to equity and fre cash flows to firm? how are hey determined to their defined formula? i mean what is the rationale behind it? TIA

1 Answer(s)


FCFF :- A measure of financial performance that expresses the net amount of cash that is generated for the firm, consisting of expenses, taxes and changes in net working capital and investments.

FCFF= Operating cash flow-expenses-taxes-changes in NWC (net working capital)- changes in investments

FCFE :- How much cash can be paid to the equity shareholders of the company after all expenses, reinvestment and debt repayment.

FCFE = Net Income - Net Capital Expenditure - Change in Net Working Capital + New Debt - Debt Repayment