π΅ Unlevered Free Cash Flow Calculator
Cash the whole firm generates, debt aside.
Unlevered free cash flow
Estimates for planning only, not financial advice.
EBIT of $2.0M at a 21 percent tax rate, with $0.4M of D&A, $0.5M capex, and a $0.1M working-capital build: unlevered free cash flow is $1.38M. NOPAT is $1.58M; non-cash charges add back $0.4M; real cash investments take $0.6M. The $1.38M belongs to every capital provider, before anyone gets paid.
How to Use This Calculator
Enter EBIT, the tax rate, depreciation and amortization, capital expenditures, and the increase in net working capital. The calculator returns NOPAT and unlevered free cash flow.
Enter EBIT (operating income). Exclude interest; include everything operational.
Add back D&A: non-cash charges that reduced EBIT but cost no cash.
Subtract capex and working-capital increases: the cash the business must reinvest to keep running.
The Formula
"Unlevered" means before debt: interest is excluded so the cash flow belongs to the whole firm, debt and equity alike. That is what makes it the right numerator for enterprise value: discount UFCF at WACC and you value the entire firm, then subtract debt to get equity value. Start from net income instead and you get levered cash flow (FCFE), which discounts at cost of equity.
Worked Example
EBIT $2.0M, tax 21 percent: NOPAT = 2.0 x 0.79 = $1.58M. Add D&A $0.4M: $1.98M operating cash proxy. Subtract capex $0.5M and NWC increase $0.1M: $1.38M UFCF. FCF is 69 percent of EBIT here; the 31 percent gap is the reinvestment the business demands. A company can grow EBIT forever and still be worth little if capex and working capital eat it all.
UFCF vs FCFE
| UFCF (to firm) | FCFE (to equity) | |
|---|---|---|
| Starts from | EBIT (pre-interest) | Net income |
| Belongs to | Debt + equity | Equity only |
| Discount at | WACC | Cost of equity |
| Values | Enterprise value | Equity value directly |
UFCF is the standard for DCF because capital structure changes do not move it: an LBO that quadruples debt leaves UFCF unchanged while FCFE collapses. That independence is the point. Use our WACC calculator for the discount rate and the TTM calculator for the earnings base.
Quality Checks
Three things to verify before trusting the number: capex versus D&A (capex persistently above D&A means the asset base is growing, fine; capex below D&A means underinvestment, flattering cash flow temporarily), working-capital swings (a one-year NWC release is not recurring cash flow), and whether EBIT itself is clean of one-offs. UFCF quality is what separates a real compounder from an accounting story: compare multi-year UFCF against reported net income and be suspicious of a permanent gap.
From UFCF to Enterprise Value: the DCF Bridge
Here is the $1.38M from the worked example becoming a valuation. Project UFCF growing 5 percent for 5 years: $1.449M, $1.521M, $1.598M, $1.677M, $1.761M. Discount at 10 percent WACC: present values $1.317M, $1.257M, $1.200M, $1.146M, $1.094M, summing to $6.01M. Terminal value with 2 percent perpetual growth: 1.761 x 1.02 / (0.10 - 0.02) = $22.46M at year 5, worth $13.94M today. Enterprise value: $6.01M + $13.94M = $19.96M.
Notice where the value lives: over 70 percent sits in the terminal value, which is why DCFs are so sensitive to the perpetual growth rate and WACC. Move WACC from 10 to 11 percent and the EV drops about 12 percent; move terminal growth from 2 to 3 percent and it rises about 14 percent. Always present the valuation as a matrix over WACC and growth assumptions, never as a point. The UFCF forecast gets the attention, but the terminal assumptions decide the answer.
Sanity-Checking Your UFCF
Before a UFCF number enters a DCF, interrogate it. Compare UFCF to net income over several years: persistently higher UFCF than earnings can signal aggressive revenue recognition or under-reserved working capital, while persistently lower UFCF flags a capital-hungry business. Check the capex-to-D&A ratio: below 1.0 for years means the asset base is being milked, and the forecast must either restore maintenance capex or accept declining capacity.
Normalize the weird years. Strip out one-off working capital swings, restructuring cash costs, and pandemic-era anomalies before projecting; a forecast anchored on a freak year compounds the freakery forever through the terminal value. Cross-check with the cash conversion cycle: if days sales outstanding keep rising while revenue grows, some of that UFCF is phantom, sitting in receivables that may never convert. Clean inputs, honest valuation.
Cash Is the Business
Unlevered free cash flow is the number every valuation rests on: the cash the business produced, independent of how it is financed. Build it carefully from EBIT, normalize the weird years, sanity-check it against earnings and capex, and discount it at WACC to enterprise value. The $19.96M in the example came from clean inputs and honest terminal assumptions; yours should too. Cash does not lie, but forecasts can: keep them honest.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is unlevered free cash flow?
Cash generated by operations available to all capital providers (debt and equity), computed as NOPAT plus D&A minus capex minus working-capital increases. 'Unlevered' means before interest and debt payments. Also called free cash flow to firm (FCFF). It answers the purest question in valuation: how much cash did the business itself produce, regardless of how it is financed?
How do you calculate unlevered free cash flow?
NOPAT = EBIT x (1 - tax rate); then UFCF = NOPAT + depreciation/amortization - capex - increase in net working capital. With EBIT $2M, 21% tax, $0.4M D&A, $0.5M capex, $0.1M NWC build: $1.38M. Note the tax is applied to EBIT, not net income: this hypothetical tax bill is what the firm would owe if it had no debt, keeping financing out of the picture.
What is the difference between UFCF and FCFE?
UFCF (to firm) starts from EBIT, belongs to debt and equity, and discounts at WACC to enterprise value. FCFE (to equity) starts from net income, subtracts debt payments, belongs to shareholders, and discounts at cost of equity. Both should give the same equity value when done consistently; analysts usually pick one and stick with it rather than running both.
Why exclude interest from free cash flow?
To value the firm independent of its financing. Interest belongs to debtholders, so including it would double-count when you later subtract debt from enterprise value. Unlevered cash flow keeps the capital structure out of the operating picture. This separation is what makes DCFs comparable across firms with different debt levels: the operating forecast is pure, and financing enters only through WACC.
What discount rate do I use with UFCF?
WACC (weighted average cost of capital), since UFCF belongs to all capital providers. Discounting UFCF at WACC gives enterprise value; subtract net debt to reach equity value. The discount rate must match the cash flow's claimants: UFCF to everyone discounts at everyone's blended rate, which is exactly what WACC is.
Why add back depreciation?
Depreciation reduced EBIT for accounting but consumed no cash in the period. Adding it back converts the accounting profit toward cash. The offsetting reality is captured separately: capex, the actual cash spent on assets. This is why the add-back is not double counting: depreciation spreads past capex over time, while current capex records this period's actual spending.
What if capex is less than depreciation?
Cash flow looks great temporarily, but the asset base is shrinking: the company is underinvesting. Sustainable UFCF assumes maintenance capex roughly equals D&A over time; adjust for growth capex when valuing. Private-equity buyers scrutinize exactly this: an inflated UFCF from deferred maintenance gets normalized downward before they pay for it.
How does working capital affect UFCF?
Growing businesses tie up cash in receivables and inventory (NWC increases reduce UFCF); shrinking or efficiency gains release cash. One-off working-capital swings can dominate a single year's UFCF, so average over cycles. A retailer building inventory before the holidays can show terrible Q4 UFCF and superb Q1; annual figures smooth the seasonality.
Can UFCF be negative?
Yes, for growing or distressed companies investing heavily. Negative UFCF is fine if the investments earn returns above WACC; it is fatal if they do not. Judge by return on invested capital, not by the sign alone. Amazon ran negative or thin free cash flow for years while building logistics; the investments compounded. WeWork burned cash with no path to returns; the sign was the same, the economics were not.
UFCF vs operating cash flow?
Operating cash flow starts from net income (after interest) and includes working capital but not capex. UFCF starts from EBIT (before interest) and subtracts capex. UFCF is the fuller 'cash the firm produced' measure. You can reconcile the two: UFCF equals operating cash flow plus after-tax interest minus capex, a handy cross-check when building from statements.