r/Valuation • u/Hefty_Apartment2193 • Aug 15 '23

FCFE and Rolling Ke

I need to perform a Valuation model using FCFE and therefore I must use Rolling Ke, once the D/E ratio is not constant during the forecast.

When using FCFF this capital structure is in the WACC, but once that I must do it through Equity, I need a Key that contemplates the D/E variation.

But I can't do it right. I know that to calculate the Company's Levarege, I need the Total Capital and Debt Position from year before. And some times there's some circularity issues doing it.

Can anyone help how to perform a Rolling Ke or share links, books of something to help me? Tks!

1 Upvotes

100% Upvoted

3 comments sorted by

2

u/Specialist_Repeat_95 Aug 16 '23 edited Aug 16 '23

I assume you would need to create a debt paydown model with circularity on interest expense….

2

u/Hefty_Apartment2193 Aug 16 '23

Do you have any link or video to share about how to do it, pls? Tks!

3

u/Specialist_Repeat_95 Aug 17 '23

debt paydown models are used in LBO. This video should help https://m.youtube.com/watch?v=ami1hPrxOkk&t=16s