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FCFEFree Cash Flow to Equity (financial analysis)
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There is, however, no effect on free cash flow to equity from classifying all leases as capital leases, because the increase in capital asset expenditures as a result of the change in the present value of operating lease expenses is counterbalanced by the increase in net nonoperating obligations created by the capitalization (as long as necessary adjustments are made to the cost of capital and debt level, debt ratios remain stable, and operating leases are fairly valued).
Free cash flow to equity (FCFE) represents post-tax cash flows that are available to be distributed to all the equity fund providers of an entity, net of capital requirements to grow or maintain the business.
Moreover, Tole, McCord & Pugh (1992), recommend Free Cash Flow to equity investors as a better measure of performance than net income.
Cash flow analysis leads to the conclusion that operating cash flows will sufficiently cover these obligations, besides leaving Rs3.3/share of free cash flow to equity. Therefore, the company may opt for a payout up to Rs2.0/dividend.