DCF cash flows and tax basis

Methods and settings

Follow FCFF rather than EBITDA

FCFF = EBIT − operating tax + D&A − capex − increase in operating NWC + supported other operating/noncash items + entered other FCFF. Expense inputs and statement display signs are reconciled by the calculation: D&A is added back, investment is deducted, and an operating NWC increase consumes cash. The schedule displays the components so a surprising FCFF can be traced.

Read supported cash movements

When the model provides operating AR, inventory, AP and other working-capital movements, DCF uses these movements rather than simply subtracting two reported balance totals. This avoids treating supported noncash adjustments as cash investment twice. Other operating noncash and balance-related cash-flow effects enter the supported other component. Start from the same reported/adjusted basis used by the method.

Choose tax consciously

Normalized EBIT tax is max(EBIT,0) × tax rate. It does not use the model’s loss carryforward and gives no automatic tax refund for a negative EBIT. Model tax expense instead follows statement tax, including interest and other financing effects; the UI warns about that departure from an unlevered basis. Neither choice turns DCF into a tax-return or deferred-tax model.

Reconcile a synthetic year

Suppose EBIT is 100, tax is 25, D&A is 20, capex is 30 and operating NWC rises by 10, with no other items. FCFF is 55. EBITDA would be 120, so using EBITDA as the discounted cash flow would omit tax, investment and working-capital needs. Other annual FCFF inputs are additive amounts: enter them only for a separately justified cash-flow item, not to repeat an adjustment already in the model.

Listed-company SBC treatment

The listed SBC policy books incremental equity-settled expense and its noncash CFO add-back. FCFF retains the economic cost by default; the explicit FCFF add-back choice removes that cost while configured dilution remains. Do not add the same expense or noncash adjustment again in Other FCFF. The expense amount does not generate award grants automatically.