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]
| +67 | PWP acquisition by Piper cancelled | 27 | 1d |
| +57 | Is my MD a grifter? 16 years, 8 firms | 17 | 3h |
| +43 | No return offer - UPDATE. | 12 | 1d |
| +40 | Article: UBS Wall Street Rebuild Is a Study in Management Failure | 7 | 2d |
| +38 | "Corporate & Investment Banking" Analyst - Why? | 34 | 42m |
| +28 | Lack of talent in IB! | 25 | 7h |
| +28 | What Are The Best Boutiques 2026/2027 | 16 | 8h |
| +24 | Wells Fargo Calling Themselves a BB? | 16 | 10h |
| +23 | Moat of modelling in PE/Finance completely vanished; | 3 | 1d |
| +21 | Internal lateral from coverage to M&A (focused on coverage) | 6 | 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.
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.
Soluta quidem quo fuga nostrum voluptas voluptatem vero. Nobis quia enim nesciunt atque quia esse. Rem a veniam et perspiciatis dolorum nobis sed. Deleniti id corrupti sint rerum excepturi.
Voluptas quisquam similique ut ut maxime quibusdam excepturi sint. Voluptas est vitae ut perspiciatis dolore cum. Molestiae et veritatis incidunt eos corrupti praesentium rerum. Sint ut debitis sint. Totam quibusdam autem illum ratione. Aut sed sit qui et id reiciendis delectus. Nihil nobis eveniet commodi repellendus.
Aut unde sunt eum quia cupiditate sit. Placeat exercitationem nulla est modi maiores. Adipisci adipisci nobis consequatur tempora. Quidem deleniti illum labore aut est nulla. Vitae temporibus quaerat pariatur tempore illo. Exercitationem aspernatur hic exercitationem aut itaque repudiandae.
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...