IS FCFE correct ?

This question once came to my mind, is the FCFE method correct because drawing an analogy from the bond markets, the value of the bond is the PV of all the future cash flows from the bond. Hence the PV of a share should be the PV of all the cash flows that would be received by the shareholder. So in that sense the DDM becomes the best method, but still people do not use it. It is shunned by the investor community. Then i looked up the internet to find the answer that i needed

A. Damodaran has put this answer very beautifully in his book, he says that FCFE assumes that all the potential cash that is left after payment of debt holders, taxes and operating expenses is assumed to be paid to the equity holders. Therefore we can say that the investors get the FCFE. It assumes that there is no cash build up in the company and all the cash available is distributed to the shareholders. Therefore we would have seen that the cash component of the present year is added separately to the equity value.

Also the reason for the firm not giving out Dividends =FCFE are as follows

The company might have future needs for huge capex. Therefore in order to account for that requirement the company doesnot pay out in full

Companies, in good time generally do not tend to increase the dividends becuase if in the future time periods they were to decrease the dividend, the market takes it as a bad signal and beats the stock price. Therefore we often see a lag between the increase in dividend distributed and the increase in earnings

The management might want to build an empire of its own, and hence wants to increase the cash present with it