Free Cash Flow to Equity Holders (FCFE)

Morningstar calculates free cash flow to equity holders (FCFE) as the cash a business generates that is available to common equity holders. FCFE adjusts free cash flow for interest expense and changes to net working capital. It represents cash that could be distributed through dividends or share repurchases or retained for future growth.

FCFE is a helpful metric because a company's equity value depends on the cash flows available to its equity holders. Companies can report strong earnings or even healthy free cash flow while generating less cash for equity holders because of interest payments or increased investment in working capital. Young or rapidly growing companies may have low or negative FCFE because they are investing heavily in the business. More mature companies often generate stronger, more stable FCFE.

FCFE is a non-GAAP metric, and companies may calculate and report it differently.