Free Cash Flow to Equity

FCFE is what could in principle be paid out to shareholders without impairing the business, so discounting it at the cost of equity values the equity directly. It is more volatile than FCFF because it swings with borrowing decisions: raising debt increases FCFE in that year without the business having produced anything more. That property makes it easy to misread a debt-funded year as a strong one. Where capital structure is stable, valuing the firm through FCFF and then subtracting net debt is generally the more robust route to the same answer.