What is the reasoning behind using EBIAT instead of EBIT in deriving unlevered FCF in a DCF?
[EBIT - taxes at the marginal tax-rate =EBIAT +D&A -Capex
= unlevered FCF]
| +322 | Which Offer to Accept: UBS Analyst Role or Part Time Cashier at the Local Taco Bell | 38 | 2h |
| +157 | Differences in Restructuring Teams? | 30 | 1h |
| +141 | Roku-Fox Deal - UBS Misses Out on yet another deals after years chasing this deal | 22 | 1d |
| +140 | GF is an IB Analyst at a top BB, hates it, what exit options does she have? | 24 | 1d |
| +136 | TPH V.S. Mizuho [HOU] | 19 | 2d |
| +129 | How do you manage nerves in IB technical interviews? | 13 | 2h |
| +116 | Useless associates | 27 | 1d |
| +114 | 2026-27 IB Energy Top Banks | 20 | 2h |
| +113 | AI is insane | 30 | 1d |
| +109 | Shame on you Evercore - SA 28 | 29 | 2h |
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.
Tax expense affects the amount of cash available to investors, specifically equity investors, because taxes are expensed before any remaining profit can be distributed as dividends. Unlevered FCF reflects the amount of cash available to all investors, and so has to include tax expense in its calculation.
Never knew it was called EBIAT, always known it as NOPAT
Some people also use “Tax-Effected EBIT”
NOPAT is different than EBIAT tho
[replied in the wrong spot]
Total tax effect is split in 2: - Tax effect of capital structure is incorporated in your discount rate (positive effect on value, lowers cost of debt -> lower WACC -> higher EV) - The tax from EBIT to NOPAT is the tax on the business cash flows and overstates tax expense because of the above (tax expense up -> FCF down -> EV down)
Why does it overstate the tax effect? Because you apply a tax rate pre-interest?
Exactly: actual interest charge would be lower given interest expense. But that effect is in the discount rate by lowering the cost of debt by this effect.
Quia sapiente et aspernatur qui et. Repudiandae asperiores vel optio ipsa. Ipsam incidunt vel voluptatem ratione ullam quod labore dicta.
Est et animi rem facilis quis est ut. Est cum qui ducimus at blanditiis quam. Voluptatum dolores ipsa esse tenetur ut.
Nulla quam id laborum aspernatur. Et doloribus quis impedit voluptatem. Pariatur quas ut dignissimos est alias id quis. Ex iste optio occaecati officiis harum.
Molestiae possimus in amet quia et temporibus asperiores. Omnis et dolore magnam a quaerat possimus sequi. Dolorem earum recusandae quam alias natus. Ipsam numquam officia praesentium est natus sequi accusantium. Consectetur soluta reprehenderit mollitia est ut ab. Pariatur voluptatem non in 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...