FCFF to FCFE Bridge Calculator
Convert same period FCFF into FCFE using interest expense, a tax rate, and net borrowing. The calculator reports cash flow amounts in USD, not company value.
How the FCFF to FCFE bridge works
Enter FCFF, interest expense, the tax rate as a percentage, and net borrowing for the same period. Use USD for all three cash flow amounts. The calculator first reduces interest expense by the entered tax rate, then subtracts that after tax interest from FCFF.
FCFE is the cash flow left for equity after interest and net borrowing are included. A positive net borrowing amount means new debt issued exceeded principal repaid. A negative amount means principal repaid exceeded new debt issued.
For example, $1,000,000 of FCFF, $150,000 of interest expense, a 25% tax rate, and $50,000 of net borrowing produce $112,500 of after tax interest, a $37,500 interest tax shield, and $937,500 of FCFE.
These are period cash flows. This calculator does not discount them or calculate enterprise value, equity value, WACC, cost of equity, or FCFE from net income.
Step by step
- Enter FCFF and interest expense in USD for the same period.
- Enter the tax rate as a percentage and net borrowing as debt issued minus principal repaid.
- Read after tax interest, FCFE, and the interest tax shield, each in USD.
Worked example
Enter FCFF of $1,000,000, interest expense of $150,000, a tax rate of 25, and net borrowing of $50,000. The calculator returns after tax interest of $112,500, FCFE of $937,500, and an interest tax shield of $37,500.
The bridge subtracts $112,500 of after tax interest from FCFF, then adds $50,000 of net borrowing. The amounts stay in USD for the same period.
When to use this calculator
Use the bridge to convert a same period FCFF amount into FCFE under the entered interest, tax rate, and net borrowing assumptions.
Use a separate forecasting and discounting model when you need a company or equity valuation.
Common mistakes
Keep the three cash flow amounts in the same currency and period. Enter tax rate as a percentage, such as 25 for 25%.
Use debt issued minus principal repaid for net borrowing. A net repayment is negative. Do not subtract interest again after using this FCFE result in a separate calculation.
The formula
After tax interest = Interest expense × (1 − Tax rate ÷ 100)
FCFE = FCFF − After tax interest + Net borrowing
Interest tax shield = Interest expense × Tax rate ÷ 100
All cash flow inputs must use the same currency and period. The tax shield calculation assumes the entered tax rate applies to the full interest expense.
Limitations and assumptions
The calculation assumes all amounts cover the same period and currency. It applies the entered tax rate to all interest expense, does not check tax deductibility, and does not model other accounting adjustments. It does not forecast or discount cash flows, calculate a valuation, or derive FCFE from net income.
Key terms
- FCFF
- Free cash flow to the firm, before interest and financing flows in this bridge.
- FCFE
- Free cash flow to equity after after tax interest and net borrowing are included.
- Net borrowing
- Debt issued during the period minus principal repaid during that period.
Related analysis
After building a cash flow forecast, a DCF valuation tool can discount projected cash flows. A WACC calculator estimates a discount rate for firm cash flows; this bridge does not select a rate.
For a broader valuation workflow, review projected cash flows, discount rate assumptions, and the transition from enterprise value to equity value separately.
FAQ
What is the difference between FCFF and FCFE?
FCFF is free cash flow available to the firm before interest and financing flows. FCFE is the amount after the bridge accounts for after tax interest and net borrowing. Both are cash flow measures, not company valuations.
How should I enter net borrowing?
Enter debt issued minus principal repaid for the period. For example, $80,000 issued and $30,000 repaid is $50,000 net borrowing. If $30,000 is issued and $80,000 is repaid, enter −$50,000.
How is the interest tax shield estimated?
The calculator multiplies interest expense by the entered tax rate. It assumes the full interest amount receives that tax treatment. Actual tax treatment can differ, so the result is a formula estimate rather than a tax calculation.
Can this calculator derive FCFE from net income?
No. It has no net income input. It converts the FCFF input using after tax interest and net borrowing, so it does not estimate FCFE from net income or other accounting items.
Does FCFE show equity value?
No. FCFE is a cash flow for a period. Estimating equity value requires projecting future FCFE and discounting it at an appropriate cost of equity, which this calculator does not do.
Related tools
A DCF valuation tool can discount forecast cash flows. A WACC calculator can help examine a firm discount rate, and an enterprise value tool can show a separate bridge from enterprise value to equity value.