Unlevered FCF excludes which item?

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Multiple Choice

Unlevered FCF excludes which item?

Explanation:
Unlevered Free Cash Flow shows the cash a company generates that’s available to all providers of capital, before any debt service. Because it’s supposed to reflect operating performance independent of how the company is financed, it excludes interest expense, which comes from financing decisions and varies with capital structure. In practice, unlevered FCF uses after‑tax operating income (NOPAT), adds back non‑cash depreciation, and then subtracts cash outlays for capital expenditures and working capital changes. Taxes are included because they reduce after‑tax income, depreciation is added back because it’s a non‑cash charge, and capex reduces cash since it’s a real cash outflow. This is why interest isn’t part of the calculation—the focus is on operating performance, not financing.

Unlevered Free Cash Flow shows the cash a company generates that’s available to all providers of capital, before any debt service. Because it’s supposed to reflect operating performance independent of how the company is financed, it excludes interest expense, which comes from financing decisions and varies with capital structure.

In practice, unlevered FCF uses after‑tax operating income (NOPAT), adds back non‑cash depreciation, and then subtracts cash outlays for capital expenditures and working capital changes. Taxes are included because they reduce after‑tax income, depreciation is added back because it’s a non‑cash charge, and capex reduces cash since it’s a real cash outflow. This is why interest isn’t part of the calculation—the focus is on operating performance, not financing.

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