Hi,
When you calculate free cash flow for a company - do you subtract out cash interest payment and mandatory debt amortization? No specification on whether it's levered or unlevered free cash flow.
Thank you
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Assuming you start with EBIT and go down the route of taking out taxes, capex, NWC, and adding back D&A, I think of them like this.
FCF - Includes interest but excludes mandatory debt payments (amortization). This FCF shows the cash available after paying capex and all operational expenses, including interest, but not mandatory debt payments.
UFCF - Excludes interest and debt payments
LFCF - Includes interest and debt payments
“FCF” is generally referred to in the space as EBITDA - maintenance CapEx. What OP is referring to is LFCF, but in practice people just call it free cash flow regardless of the situation and footnote the definition.
OP isn't necessarily referring to either, as he noted the question doesn't specify between LFCF or UFCF. I agree though, the term FCF can take many forms depending on the group, industry and even individual. The one I noted above is the one I usually go for in a general context, but EBITDA - maintenance capex is also true in most situations.
FCF in your definition does NOT include interest… you are starting with EBIT, which is literally “before interest”
If it’s not specified as a part of a case study, you should specify it so it’s abundantly clear to the reader. Also depends on the context of the question. Are you trying to determine enterprise value or equity value? If both, just calculate/label separately.
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