• Generally, defining returns as free cash flow and using the FCFE (and

FCFF) models are most suitable when

• The company is not dividend - paying.
• The company is dividend - paying but dividends significantly exceed or
fall short of free cash fl ow to equity.
• The company ’ s free cash flows align with the company ’s profitability
within a forecast horizon with which the analyst is comfortable.
• The investor takes a control perspective.
• Investment in fi xed capital in excess of depreciation (FCInv – Dep) and
investment in working capital (WCInv) both bear a constant
relationship to forecast increases in the size of the company as
measured by increases in sales