why is fcfe more volatile than straight cash flow?
CFO does not consider investments in Fixed capital , you cant compare them…
What do you mean by “straight cash flow”? CFO? Total cash flow (i.e., CFO + CFF + CFI)? Something else?
maybe FCFE vs FCFF?
if this is the case FCFF is total free cash flow to the firm, i.e. cash flow available to both debt and equity stake holders
FCFE is more volatile because this is the Free cash flow striclty available to just equity stake holders. imagine a firm with a debt ratio (debt to total assets) of 80%, the free cash available to equity holders will be alot less than the total free cash to the firm since much of the free cash could be tied up in interest payments
remember
FCFF = NI + Dep + Interest(1-t) - WCInv - FCInv
FCFE = NI + Dep - WCInv-FCInv + Net Borrowing
the reading i saw just said straight cash flow. I get how FCFE is more volatile than FCFF, but is FCFE more volatile than CFO?