Investment Analysis and Portfolio Management

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Name Instructor: Course: Date: Free Cash Flow to Equity FCE The aim of this documents it to review the model of Free Cash Flow (FCF) to equity FCE. To calculate the value of stock in a firm, there is a need to forecast on free cash flow or Equity FCE. Moreover, cash flow discounting is back to the required return rate. Free Cash Flow and Equity FCE are effective models to use in the case where a Company fails to pay its dividends as it reads from cash flow. Also, free cash flow follows up profitability. Free Cash Flow and Equity FCE enables the financial analyst in a firm to take up business control outlook. Therefore, an analyst should ensure that there is a parallel difference between free cash flow compared to discounted dividends. For instance, the framework of free cash flow seems analogous as compared to Gordon growth model. Free Cash flow to Equity Free Cash Flow to Equity refers to available cash flow or the remaining cash after the interest of debt has been made. The remaining cash flow is what is finally distributed to various shareholders of the firm. It is important to note that in many companies investors come to buy their stock because they have a built a confident that a company will repay through dividend payments. However, a firm is liable to pay back only if it has acquired more cash than what had spent. This provides the reason why it is important for a company to calculate free cash flows to equity. Cash flows Cash flows refer to what enters into a firm as revenues after selling its product or a service. In other words, cash flows enable a company to determine operating expenses such as taxes, salaries, and utilities. However, cash flow

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