what is the theoretical justification for why estimating intrinsic value of a stock price can be different under FCFF (Free Cash Flow to the Firm) and FCFE (Free Cash Flow to the equity) approaches? Intuitive explanation for why one can get different intrinsic values for a stock under FCFF and some approaches like Gordon Growth Model and multiples can be easily understood: the assumption behind them is totally different: FCFF assumes that the investor has controlling over the cash flow of the company and …. But, I think the same doesn’t go for FCFF and FCFE. (I am not seeking a mathematical response, but an intuitive one)

  • $\begingroup$ What do the acronyms stand for? $\endgroup$ Commented Apr 26, 2019 at 11:20
  • $\begingroup$ If the value of the firm is equal to the value of the equity plus the value of the debt then the FCFF and FCFE should produce the same result. $\endgroup$
    – nbbo2
    Commented Apr 27, 2019 at 1:11


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Browse other questions tagged or ask your own question.