Free Cash Flow to Equity formula
\[ \text{Net profit} - \Delta\,\text{Non-current assets} - \Delta\,\text{Trade Working Capital} + \Delta\,\text{Financial debt} \]
It differs from free cash flow to firm by interest paid and net new borrowing.
Terms
- Trade Working Capital, change over the period: The capital tied up in the operating cycle: what customers owe plus inventory, minus what is owed to suppliers. Its change over a period is the working-capital line in free cash flow.
- Financial debt, change over the period: Interest-bearing borrowings, short- and long-term: bank loans, overdrafts, bonds, lease liabilities.
- Net profit, period total: The period’s result after all income, expenses and taxes.
- Non-current assets, change over the period: Assets held for more than a year: intangible, tangible and long-term financial assets, net of accumulated depreciation.
Result
Free Cash Flow to Equity is an amount in currency. Higher is better.
Target
There is no general target; compare with the company’s own history and with peers in the same industry.
Free Cash Flow to Equity pitfalls
- New borrowing raises it. A strong FCFE funded by loans is not the same as one funded by operations; check the change in financial debt.
Free Cash Flow to Equity in Business Central
Financial debt (change over the period)
- Plus 5 accounts assigned directly: 21100 Bonds and Debenture Loans, 21200 Convertibles Loans, 21400 Bank overdraft Facilities, 22500 Bank overdraft short-term, 25400 Current Loans
5 posting accounts in total.
The full account list is on the Financial debt page.
Inventory (change over the period)
- Category Inventory (6) and every category below it
12 posting accounts in total.
The full account list is on the Inventory page.
Net profit (period total)
- Every income statement account
133 posting accounts in total.
The full account list is on the Net profit page.
Non-current assets (change over the period)
- Category Fixed Assets (7) and every category below it
- Plus 12 accounts assigned directly: 11100 Development Expenditure, 11200 Tenancy, Site Leasehold and similar rights, 11300 Goodwill, 11400 Advanced Payments for Intangible Fixed Assets, 12110 Building, 12120 Cost of Improvements to Leased Property, 12130 Land, 13100 Long-term Receivables, 13200 Participation in Group Companies, 13300 Loans to Partners or related Parties, 13400 Deferred Tax Assets, 13500 Other Long-term Receivables
17 posting accounts in total.
The full account list is on the Non-current assets page.
Trade payables (change over the period)
- Plus 2 accounts assigned directly: 22100 Accounts Payable, Domestic, 22200 Accounts Payable, Foreign
2 posting accounts in total.
The full account list is on the Trade payables page.
Trade receivables (change over the period)
- Category Accounts Receivable (4) and every category below it
5 posting accounts in total.
The full account list is on the Trade receivables page.
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