Levered DCF Formula
Is the levered DCF formula to calculate FCF the following one:
FCF = EBIT * (1-T) + D&A - CAPEX - Change in working capital - Principal repayment - After tax interests + New loans - Taxes
And then discount it to the cost of equity right?
If you're calculating levered free cash flow, you discount it with the cost of equity. If you're calculating unlevered free cash flow, you discount it with WACC.
I've never seen the formula written out the way you have it for levered cash flow (including the "new loans," and it looks like you're double counting taxes?)
I'd strongly suggest reading this, definitely one of the best resources on this site: https://www.wallstreetoasis.com/forums/notes-for-technical-interview-qu…
Agree with the first poster that your treatment of taxes looks weird, and if this is for an interview, you'd probably throw your interviewer off. I think starting from EBITDA makes the most sense. I think for an interview id say something like below:
EBITDA - capex
- cash taxes
- chance in NWC
= Unlevered (technically we've got the interest tax shield in here but whatever)
- interest
- mandatory amort
+/- other (fx, etc)
= Levered
Alternatively, you can start from net income. In general, i'd just look at the cash flow statement on a 10k to see what you need to add back or deduct.
Remember though that you're usually not trying to reconcile cash exactly because you'll have items like gain/loss on FX which you might not want to model going forward.
shouldn’t you start with EBIT then tax affect it then add D&A and other adjustments to get to UFCF? as D&A is already included in COGS/SG&A within EBIT you are ignoring the tax savings from depreciation by tax affecting EBITDA instead of EBIT before making additional adjustments. is this what you mean by “cash taxes” aka EBIT * (1-t)?
agree with everything else
i always thought of the formula for FCFs as
EBIT
EBIT(1-t)
+ D&A
-CapEx
-/+ Δ NWC
UFCF
- interest
- mandatory amort
- other
LFCF
Yes.
I think building it out your way makes sense when you start reading the guides, but when you actually work in real models, you typically build it out as motley_accrual shows (usually IS and CFS are built out separately).
Yeah makes sense just wanted to double check on the “cash taxes” definition - i think it’s much better to learn it the way motley built it out than the guides
Enim consequuntur perferendis eaque ab velit optio ipsam. Laborum labore inventore ipsum eveniet minima ea eum non. Repellendus nobis dolorem et sequi voluptatibus eum facere. Alias ut in magnam eius quia eveniet deserunt.
Adipisci rerum omnis repellat voluptates eaque sed nostrum. Praesentium eius delectus voluptatem eveniet sapiente.
Neque vitae rerum qui error. Ipsam mollitia quae fugiat ut molestiae. Sed eius odio qui. Eum ea aut harum commodi accusamus. Odit necessitatibus minus qui velit dolor. Qui nihil et officia. Magni quibusdam natus incidunt mollitia fuga nesciunt necessitatibus.
Dolorum rem eos nostrum praesentium ullam. Eos libero debitis ut nam. Facilis consequatur ipsa culpa quia quibusdam rerum fuga sit.
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...