Which item is NOT included in the Free Cash Flow calculation?

Which item is NOT included in the Free Cash Flow calculation?

• A. Net Interest Income
• B. Change in NWC
• C. Depreciation
• D. Capex

Answer: (A)

Free Cash Flow to the Firm (FCFF) reflects cash generated by the business that’s available to all providers of capital, so it excludes financing items like interest. A common way to think of FCFF is EBIT after taxes plus non-cash charges, minus changes in working capital, minus capital expenditures. Depreciation is added back because it’s a non-cash expense. Change in net working capital is included because it affects cash from operations. Capex is subtracted as cash outflow for sustaining growth. Net interest income is not included because it’s tied to debt financing, not the operating cash generation that FCFF measures.

Free Cash Flow to the Firm (FCFF) reflects cash generated by the business that’s available to all providers of capital, so it excludes financing items like interest. A common way to think of FCFF is EBIT after taxes plus non-cash charges, minus changes in working capital, minus capital expenditures. Depreciation is added back because it’s a non-cash expense. Change in net working capital is included because it affects cash from operations. Capex is subtracted as cash outflow for sustaining growth. Net interest income is not included because it’s tied to debt financing, not the operating cash generation that FCFF measures.