Module I· Interview Essentials AccountingBasic
Question

Classic question: what is free cash flow and how do you calculate it?

Answer

Cash generated by the business after operating needs and capex.

```
EBIT x (1 - tax rate)
+ D&A

  • capex
  • increase in net working capital

= unlevered FCF
```

Cash flow after interest and debt service.

DCF uses unlevered FCF because enterprise value is capital-structure neutral.