# FCFE Calculation

This article explains how **free cashflow to equity (FCFE)** is calculated in Model Reef.

You will learn:

* What FCFE represents.
* How FCFE is derived from FCFF and financing flows.
* How FCFE is used in equity NPV and IRR calculations.

FCFE is the cashflow available to equity holders after all operating, investing and debt related cashflows.

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### Conceptual definition of FCFE

In Model Reef, FCFE represents the cash that could be distributed to shareholders after:

* Operating cashflows after tax.
* Working capital movements.
* Capex.
* Interest payments.
* Principal repayments and new debt drawdowns.

Equity injections and dividends are separate flows that use or provide equity cash, but FCFE answers the question:

> How much cash is available to equity holders before any decision about dividends or new capital raises.
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### FCFE from FCFF and financing flows

Given FCFF, Model Reef constructs FCFE by adjusting for debt service and net new borrowing.

In cashflow terms:

```
FCFE
= FCFF
minus Interest paid
minus Principal repayments
plus Debt drawdowns
```

Sign conventions:

* Interest paid and principal repayments reduce cash available to equity.
* Debt drawdowns increase cash available to equity, since they are an additional funding source in that period.

Equity injections and dividends are tracked separately and used when computing some equity metrics and IRRs.
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### Link to the Cashflow Statement

In Cashflow Statement rows, FCFE is equivalent to:

* Operating cashflows.
* Minus capex in Investing cashflows.
* Minus net debt repayments (interest plus principal).
* Plus any new debt issued.

The valuation engine uses an internal FCFE series rather than a manual spreadsheet calculation, but the logic is the same.
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### FCFE and equity value

When you value the business on an equity basis:

* FCFE is discounted at the **equity discount rate**.
* The discounted FCFE series plus discounted equity terminal value give **equity value** directly.
* There is no need to adjust for net debt afterwards, because debt effects are already built into FCFE.

This makes FCFE particularly suitable when you care most about equity holder returns.
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### FCFE in scenarios

Across scenarios you can compare FCFE profiles to see how:

* Different capital structures affect equity cashflows.
* Changes to debt terms or repayment patterns change equity risk and return.
* Dividends and capital raises interact with free cashflow.

For each scenario, FCFE is recomputed automatically as you adjust any of the underlying drivers.
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***

### Related articles <a href="#related-articles" id="related-articles"></a>

* [​Utilisation & Capacity Planning](/use-cases/professional-services-and-consulting/utilisation-and-capacity-planning.md)
* ​[Build a Unified Forecast from Multiple Inputs](/how-tos/core-modelling/build-a-unified-forecast-from-multiple-inputs.md)
* [​NPV Calculation](/help/financial-outputs-and-valuation/npv-calculation.md)
* [Entering Schedules](/syntax/how-input-fields-work/entering-schedules.md)


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