Module I· Interview Essentials AccountingBasic
Question
Classic question: what is free cash flow and how do you calculate it?
Answer
Free cash flow
Cash generated by the business after operating needs and capex.
Unlevered FCF formula
```
EBIT x (1 - tax rate)
+ D&A
- capex
- increase in net working capital
= unlevered FCF
```
Levered FCF
Cash flow after interest and debt service.
Valuation
DCF uses unlevered FCF because enterprise value is capital-structure neutral.