• anonymous
Is free cash flow model suitable to value a corporation with a lot of associates and JVs in which the corporation shared a lot of net income under the equity accounting principle? Coz the starting point of FCF is operating income which does not include any shared profit from JV and associate. Many thanks
  • Stacey Warren - Expert
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  • anonymous
Your question I feel is too generic. This situation can depend on the company and its business model. In any case FCF is a good indicator of how much cash is left after meeting all operating and capital expenditure. Probably if you read the cash flow statement you will get a better picture of where money or cash is deployed. There are some companies which are purely holding companies with stakes in their subsidiaries and JVs. If these companies do not have any significant business other than managing their investment in group companies, then they would have good cash reserves. If you feel that income from subsidiaries/JVs should not form part of the FCF you can exclude the same, but holding companies are an exception because their business is to invest in group companies. Interpreting cash flows can be a highly subjective point because it depends on how you look at the operations as a whole.

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