
Free Cash Flow to Equity Spreadsheet
Company Share Price Valuation using Free Cash Flow to Equity
This spreadsheet values a company's share price by using the Free Cash Flow to Equity model. The Free Cash Flow to Equity is defined as the sum of the cash flows to the equity holders in the firm.
Valuation Summary
The Free Cash Flow to Equity (FCFE) is calculated as follows:
FCFE = EBIT * (1Tax rate) + Depreciation  Capital expenditure  Change in Working Capital + New debt issued  Debt repayments
The terminal value of the firm's equity beyond the projection horizon is also estimated and added to the cash flow. The final cash flow discounted with the cost of equity provides the equity value.
Comparisons with Free Cash Flow to Firm
The main difference between Free Cash Flow to Equity (FCFE) and Free Cash Flow to Firm (FCFF) is the treatment of debt. FCFE can be thought of as follows:
FCFE = FCFF + New debt issued  Debt repayments
Assumptions
The following are inputs to be entered into the spreadsheet as assumptions. The values will be used by other parts of the spreadsheet.
 Cost of Equity  This is used to discount the cash flow to equity.
 Tax Rate  Company's Tax Rate
 Growth rate of Cash Flow after projection horizon  A fix growth rate after the projection horizon. This growth rate is used in the estimation of the Terminal Value of the company.
 Value of Non Operating Assets  The Discounted value of the Free Cash Flow to Equity yields the value of the operating assets. The equity value can be derived by adding the value of the Non Operating Assets from the value of the operating assets.
 Number of Common Shares  The equity value will be divided by the number of common shares to determine the price per share.
Projected Income
The Earnings before Interest & Taxes (EBIT) is calculated as follows:
Earnings before Interest & Taxes(EBIT) = Net Sales  Total Variable Costs  Total Fixed Costs  Depreciation
Net income is calculated as follows:
Net income = EBIT  Taxes
Net Debt
Net Debt is calculated as follows:
Net Debt = New Debt Issued  Interest * (1  Tax Rate)  Existing Debt Principal Repayments
The reason for multiplying the Interest with (1 Tax Rate) is because Interest can be used as a Tax Shield.
Net Working Capital and Investment (Capital Spending)
The Net Working Capital and Investment (Capital Spending) are taken into account in these two sections.
The Net Working Capital at Year 0 can be entered directly into the spreadsheet. From Year 1 onwards, it is calculated as a function over Net Sales as follows:
Net Working Capital = Net Working Capital over Sales * Net Sales
Net Working Capital cash flow is calculated as follows:
Net Working Capital cash flow = (Current Year Net Working Capital  Previous Year Net Working Capital) + NWC Recovery at end
Aftertax salvage value is calculated as follows:
Aftertax salvage value = Salvage value * (1  Tax Rate)
Net Capital Spending is calculated as follows:
Net Capital Spending = Initial Investment + Aftertax salvage value
Projected Free Cash Flows
This section uses the value from the Net Working Capital, Investment (Capital Spending), EBIT and Depreciation to calculate the Free Cash Flow to Equity.
Free Cash Flow to Equity (FCFE)
FCFE = EBIT * (1Tax rate) + Depreciation + Net Debt  Capital expenditure  Change in Working Capital
Equity Valuation
Terminal Value
The Terminal Value of the Firm's Equity is estimated as follows:
Terminal Value = Final Year Cash Flow * (1+Growth rate of Cash Flow after projection horizon) / (WACC Discount Rate  Growth rate of Cash Flow after projection horizon)
Operating Value
Operating Value is calculated as follows:
Value of Operating Assets = Net Present Value of Cash Flows + Discounted Terminal Value
Equity Value
Equity Value is calculated as follows:
Equity Value = Value of Operating Assets + Value of Non Operating Assets
Download Free Cash Flow To Equity spreadsheet  v1.0
System Requirements
Microsoft® Windows XP®, Microsoft® Windows Vista®, Windows 7 or Windows 8
Windows Server 2003, 2008, 2012
512 MB RAM
5 MB of Hard Disk space
Excel 2002, 2003, XP, 2007, 2010, 2013
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