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Unlevered free cash flow calculator

Unlevered free cash flow is NOPAT plus D&A, minus capex, minus the increase in net working capital. On $100,000,000 of EBIT, 25 percent tax, $20,000,000 of D&A, $30,000,000 of capex and a $10,000,000 working-capital increase, free cash flow is $55,000,000.

Unlevered free cash flow

$55,000,000

NOPAT is $75,000,000.

EBIT
$100,000,000
Tax
$25,000,000
NOPAT
$75,000,000
D&A
$20,000,000
Capex
$30,000,000
Change in NWC
$10,000,000
Free cash flow
$55,000,000
$

Figures on this page are in millions of dollars.

%
$
$
$

A rise uses cash. A fall (negative here) is a source of cash.

The formula

FCF=EBIT(1−t)+DA−Capex−ΔNWCFCF = EBIT(1-t) + DA - Capex - \Delta NWC

EBIT(1−t)EBIT(1-t) is NOPAT. DADA is depreciation and amortisation, a non-cash charge added back. CapexCapex is capital expenditure. ΔNWC\Delta NWC is the increase in net working capital. A fall in working capital is a source of cash, so a negative delta raises FCF.

The teaching bridge

Start with EBIT, take tax off as if there were no interest, and you have NOPAT: the after-tax operating profit. On $100,000,000 of EBIT at 25 percent, tax is $25,000,000 and NOPAT is $75,000,000.

Depreciation and amortisation were deducted on the way to EBIT but they did not spend cash, so they come back. Capex did spend cash and is not on the EBIT line, so it comes off. An increase in working capital also spent cash: more inventory, more receivables, or less that you owe suppliers. That comes off too.

$75,000,000 plus $20,000,000 minus $30,000,000 minus $10,000,000 is $55,000,000. That is unlevered free cash flow, the cash the operations produced for all funders, before interest. It is the flow a DCF of the firm discounts.

Working capital can reverse the sign

Hold every other line on the first sheet and let net working capital fall rather than rise. A fall is cash coming back: invoices collected faster, stock run down, or suppliers paid later. The delta is then a source, and it is added.

On this sheet that source is 5 million. Free cash flow becomes $70,000,000. NOPAT did not move. Capex did not move. The working-capital line did.

Growth usually consumes working capital, which is why a fast-growing, profitable firm can still print a thin FCF. The trap is reading one year of a working-capital release as a forever source. Stock can only be run down once.

Capex is the other lever

Back to the first sheet's NOPAT, D&A and working-capital increase, but capex is now $50,000,000. Free cash flow falls to $35,000,000. The identity did not change. Maintenance and growth spending both sit in that one line on a teaching sheet, which is why a year of deferred capex can make FCF look strong.

EBITDA is EBIT plus D&A. It is not free cash flow. It has not paid tax, not paid capex, and not funded working capital. Lining a DCF up against an EBITDA multiple without walking this bridge is how a model double-counts, or skips, the cash the operations actually need.

The enterprise value calculator is the stock identity this flow is supposed to price.

What this page is not doing

It is not levered free cash flow to equity. It does not subtract interest, debt repayments, or new borrowing. Unlevered FCF is the operations. Equity FCF is what is left for shareholders after the debt service. Mixing the two is the same error as comparing a firm DCF with equity value.

It is also not a full cash-flow statement. Deferred tax, provisions, and stock-based compensation have their own lines on a live model. The five inputs here are the classroom bridge. This is educational material, not financial advice.

Worked examples

The five-line teaching sheet

EBIT is $100,000,000, the tax rate is 25 percent, D&A is $20,000,000, capex is $30,000,000, and net working capital rises by $10,000,000. What is unlevered free cash flow?

  1. Tax on EBIT: 0.25×100000000=250000000.25 \times 100000000 = 25000000, so $25,000,000.
  2. NOPAT: 100000000−25000000=75000000100000000 - 25000000 = 75000000, so $75,000,000. The same figure as 100000000×(1−0.25)100000000 \times (1 - 0.25).
  3. Add back D&A, subtract capex, subtract the working-capital increase: 75000000+20000000−30000000−10000000=5500000075000000 + 20000000 - 30000000 - 10000000 = 55000000, so $55,000,000.
  4. EBITDA is EBIT plus D&A: 100000000+20000000=120000000100000000 + 20000000 = 120000000, so $120,000,000. That is not cash.

NOPAT is $75,000,000. Unlevered free cash flow is $55,000,000.

Working capital as a source of cash

Keep EBIT at $100,000,000, tax at 25 percent, D&A at $20,000,000 and capex at $30,000,000. Net working capital falls, so the delta is -5000000. What is FCF?

  1. NOPAT is still $75,000,000. Tax is still $25,000,000.
  2. The working-capital line is now added, not subtracted: 75000000+20000000−30000000−(−5000000)=7000000075000000 + 20000000 - 30000000 - (-5000000) = 70000000, so $70,000,000.

Free cash flow is $70,000,000. NOPAT did not change. The working-capital release did.

Heavier capex on the same NOPAT

Back to a $10,000,000 working-capital increase. Capex is now $50,000,000. EBIT, tax and D&A are the first sheet. What is FCF?

  1. NOPAT is still $75,000,000.
  2. FCF: 75000000+20000000−50000000−10000000=3500000075000000 + 20000000 - 50000000 - 10000000 = 35000000, so $35,000,000.

Free cash flow is $35,000,000. Capex of $50,000,000, not a change in profit, is what moved the answer.

The mistake that costs the most

Treating EBITDA as cash, or discounting unlevered FCF and then comparing the result with equity value.

EBITDA on the first sheet would be EBIT plus D&A: $100,000,000 plus $20,000,000, which is $120,000,000. Free cash flow is $55,000,000. The gap is tax, capex and working capital. Calling $120,000,000 'cash' overstates what the operations can distribute.

Unlevered FCF prices the firm. Equity value is the firm minus net debt. The enterprise value page is the stock side of the same split.

Common questions

Is this free cash flow to equity?

No. This is free cash flow to the firm: operations, after tax as if unlevered, before interest. Free cash flow to equity would take interest and net borrowing off. A DCF of this number is an enterprise-value DCF.

Why add depreciation back?

Because it reduced EBIT without spending cash this period. The cash that bought the asset is capex, on its own line, in the period it was spent. Adding D&A back and then subtracting capex is how the bridge avoids counting a non-cash charge as a cash cost.

What if working capital falls?

Then the delta is negative and FCF rises, which is the second worked example. It is a one-time source unless the firm can keep shrinking working capital every year, which it cannot.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.