what does fcfe tell you 
the fcfe metric is often used by analysts in an attempt to determine the value of a company this method of valuation gained popularity as an alternative to the dividend discount model ddm especially if a company does not pay a dividend although fcfe may calculate the amount available to shareholders it does not necessarily equate to the amount paid out to shareholders analysts use fcfe to determine if dividend payments and stock repurchases are paid for with free cash flow to equity or some other form of financing investors want to see a dividend payment and share repurchase that is fully paid by fcfe if fcfe is less than the dividend payment and the cost to buy back shares then the company is funding with either debt or existing capital or issuing new securities existing capital includes retained earnings made in previous periods this is not what investors want to see in a current or prospective investment even if interest rates are low some analysts argue that borrowing to pay for share repurchases is a good investment when shares are trading at a discount and when rates are historically low however this is only the case if the company s share price goes up in the future if the company s dividend payment funds are significantly less than the fcfe then the firm is using the excess to increase its cash level or to invest in marketable securities finally if the funds spent to buy back shares or pay dividends are approximately equal to the fcfe then the firm is paying it all to its investors example of how to use fcfeusing the gordon growth model the fcfe is used to calculate the value of equity using this formula vequity fcfe r g v text equity frac text fcfe left r g right vequity r g fcfe 