I know you add back the Interest Exp (1-T) because it is unlevered....
but why do you subtract capital expenditures and +- net working capital?
thanks guys!
Trending Content - Job Search Advice Forum
Career Resources
WSO Free Modeling Series - Now Open Through
June 30, 2026
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
High Finance Applications
Guaranteed
Get at least one offer GUARANTEED
- 1:1 support
- 92% success rate
- 2,000+ mentor network
- Unlimited Live bootcamps
- AI for resume + LinkedIn
- Networking automation tools
- HireVue simulation tool
- Full course library
- Private Slack community
- 20hrs of mocks
- + much more...
because they take up cash...
You do this because FCF (levered or not) needs to account for 1.) the fact that a growing business generally requires more net working capital (since this is effectively a net 'trade credit' extended by the company) and 2.) the fact that some level of maintenance (and sometimes growth) capital expenditures are required to keep a business running.
So while working capital and Capex are not technically 'mandatory' payments for a business, for all intents and purposes they might as well be; as such, you need to deduct these non-discretionary (or 'non-free') uses of cash flow.
Est molestias quam nobis. Est dolor tenetur quia dolorum ut voluptate quos. A ad voluptates unde dignissimos necessitatibus sed. Vero repellat laborum aut minima voluptatem enim culpa aut. Similique quia molestiae ut reiciendis quaerat enim. Earum eveniet accusamus deserunt at incidunt. Culpa possimus maiores animi.
Molestias dicta autem maxime nobis. Laboriosam qui sint sed officia officia ratione est cumque. Et voluptas sequi et qui fugiat.
Iure animi et aut rem aut quia. Iure et animi et deserunt officia enim eligendi. Enim harum necessitatibus reiciendis fugiat. Ex voluptatem at recusandae earum autem nesciunt dicta. Quaerat asperiores maxime voluptatem suscipit. Et sint fugit enim deserunt expedita.
Quaerat sed quia ullam dolores debitis asperiores ut. Nihil et sunt incidunt nihil. Exercitationem consequatur pariatur voluptatem tempore. Porro eos accusantium omnis. Maxime quae eos similique nisi repellendus. Et similique voluptas in sint aut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...