free cash flow to equity valuation model

See Model Methodology Below

Note: Financial model results are for informational purposes only and do not represent actual outcomes. Please see our Terms and Conditions and Investment Adviser Disclaimer below.

Methodology

Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage. Below are our model assumptions:

• We use the Gordon Growth formula as our basis: Valuation=FCFE1/(r−g)

  Where:

  • FCFE = Cash Flow from Operations - CapEx + Net Borrowing

  • Valuation = the model’s value of the stock today

  • FCFE1 = Expected FCFE next year

  • r = company cost of equity

  • g = growth rate of FCFE for the company

• The company’s Beta is incorporated into r

• We utilize analyst consenus 5 year growth projections as our growth factor

• A 3 month volume profile price is utilized to smooth out short term price volatility

• Manual adjustments are made as needed for company specific outlier factors such as negative earnings due to one off write offs, etc.