When doing a DCF, we are looking to discount unlevered cash flows. Normally, you would get UCF from Revenue - COGS, etc. all the way down. But lets say you start with the last line in the Statement of Cashflows - Net Cash from Operating Activity. How would you go from that to UCF?
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I believe it is just CFO - CapEx. The other items are accounted for in the CFO calculation.
That was my own impression, but I wanted to make sure. When thinking about it I thought it was just adding back interest expense (since you want unlevered cash flow for a DCF) and subtract CapEx.
Yea, sorry, I would add back interest for unlevered, but you need to account for taxes too.
Awon, actually interest expense is an operating cash outflow...
So:
UCF = CFO- CapEx + (1 - tax rate) * (interest expense)
Interest expense will usually be in section 3, and will already have been deducted to get to CFO. If you're using the company's reported CFO number (which I implied the above was), you don't need to back out interest expense again.
Operating FCF= Some of all cash flows not related to investing or financing. There's no standard formula unless you're reading from a textbook.
Unlevered FCF = subject to the users definition. Some include Capex. Some don't. But it always excludes financing cash flows.
No, interest expense, under US GAAP, is CFO. IFRS can be either CFO or CFF.
Right, but it affects NI, the starting point for CFO.
R5A7B, I am not quite getting what you are saying
You can disregard that.
For your calculation, wouldn't you add back interest expense and remove the tax benefit?
Scratch that too, I see you adjusted your calc.
do they ask you to break this down in a interview or something?!
porsche959, no they won't ask this in an interview, not that I have ever heard of anyway. But I am a bit rusty on my accounting so I am just brushing up, then I will focus on the questions I will be asked in interviews, like how to do a DCF, etc...
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