Equities - Residual earnings returns

tikfed

How is it that the Residual earnings model can be used in place of the cash flow model to value returns when cash flows are negative?

stockjaguar

Accounting recognition.
Say you buy some equipment for $1000 that will be depreciated for 4 years.  At the same time you have income of $750 every year.   You’d have something that looks simlar to this.
Year    NI        FCF
2013   500     -250
2014   500     750
2015   500     750
2016   500     750

marsilni

Because in the RI model most of the value comes from the beginnig Book Value