What are the differences in terms of accounting between a normal company and a SaaS company? How do those differences impact an accounting question like this?
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Big question, so I'll call out two considerations:
One of the big things to think about with SaaS companies is how working capital differs from non-SaaS companies. The subscription model means significant deferred revenues, which in turn results in (often times) deeply negative working capital. That's one thing to think about.
Another thing to think about is that a lot of tech companies that are / were once start ups will have lots of stock based compensation. Whether or not you should add that back into FCF is up for debate - thinking through why is a good exercise / will definitely come up in interviews if that's why you're asking this question.
Thanks for the response! My friend in an interview was asked directly to walk through a SaaS company’s financial statements from revenue to unlevered FCF - so I was wondering if the correct answer wasn’t simply backing into EBIT by subtracting COGS and operating expenses, then doing the standard calculation for Unlevered FCF
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