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QuestionsCategory: Financials QuadrantFree Cash Flow to Equity (FCFE) Ratio
Wendy Tan asked 4 months ago
Hi Folks, 1) I refer to the example of Alphabet FCFE. "...So if you remove the cash from your calculation, Alphabet’s FCFE would naturally be much higher...." After we look for companies with FCFE > 10%, when do we decide if there is a need to delve further to calculate the actual FCFE? Is the "retained cash flow" used as the cash exclusion to arrive the actual equity? 2) From the video, it was shared that "... if a company has lower FCFE but cash position is alot, generally it is still ok..." What FCFE and Cash percentage will fit the criteria? Can FCFE ratio be used to compare companies across all sectors? Thank you for your time! regards wendy
1 Answers
Victor Chng answered 4 months ago
Hi Wendy,    I'm sorry for not getting back to you sooner, as I am currently overseas. Please see my reply below:

1. Yes, you are right. You don't need to go into more detail when the company is consistently able to get 10% FCFE. The consistency will pass the company as an asset-light.    2. For FCFE, just need to be consistently above 10%. Alphabet is able to consistently be above 10% despite a high cash level, and had proof of how asset light is the business already. In every industry, there will always be a business in that sector that is much asset-light as compared to its peers. So yes, you can use it on all sector.   
Wendy Tan replied 4 months ago

Thank you so much Victor! Enjoy your overseas trip!

Victor Chng replied 4 months ago

Welcome Wendy :)