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?
| +183 | Evercore > Goldman and I don’t think it’s particularly close anymore | 65 | 6h |
| +157 | Article: Why UBS's Asian M&A bankers are thriving and UBS's American M&A bankers are not | 17 | 1d |
| +87 | UBS Offer Day | 30 | 1d |
| +86 | Santander IB? | 10 | 3d |
| +71 | I hate Wells Fargo | 19 | 1d |
| +67 | Think Twice before Recruiting for HOUSTON IB!! | 36 | 1h |
| +51 | No return offer - feeling like a failure is an understatement | 20 | 19h |
| +49 | How cooked am I as an incoming WF IB SA 2027? | 17 | 21h |
| +46 | WF Return offers | 28 | 2d |
| +40 | 2026 Investment Banking Return Offer Climate | 25 | 1d |
Career Resources
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.
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
Officiis consequuntur sequi numquam officiis et et. Et consequatur consectetur accusantium eligendi aliquam blanditiis. Voluptatum corporis rem et enim. Velit numquam et beatae ea laborum quas veniam.
Qui voluptatem nemo sint et ut aut. Neque expedita aliquid exercitationem similique sed doloribus repellat. Eos ipsum sint dicta distinctio rerum. Enim accusantium amet ad sed.
Repellat quam aspernatur aliquam et molestias et aut. Commodi sint natus autem repudiandae. Aut illo tempore dolorem. Magnam quis et cumque in adipisci. Vitae culpa autem quia dolore magni qui est. Harum incidunt sit quia possimus minus necessitatibus. Sed totam hic incidunt nemo consequatur totam quae neque.
In ut reprehenderit possimus nobis ut unde natus. Quos atque et molestiae autem. Eaque ut corporis aut autem quo.
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...