kmf229

FCFE=CFO + Net borrowing - FCI

FCI is all Capital Expenditures. Now, FCI could be financed by Equity or it could be financed by Debt or by a combination of both.

Once, you subtract total FCI from CFO, you have reduced CFO by Capital Expenditures financed by Equity as well as by Debt.

You need to add back Debt Financing, so that you get
FCFE = CFO - Capital Expenditures financed by Equity only

To get it like this, you have to add back Net Borrowing.

Does it make sense?