Which cash flow calculation method does not account for interest or debt payments?

Which cash flow calculation method does not account for interest or debt payments?

• A. Levered Free Cash Flow
• B. Unlevered Free Cash Flow
• C. Operating Cash Flow
• D. Free Cash Flow to Equity

Answer: (B)

Unlevered Free Cash Flow is the correct method because it measures a company's cash flow without considering the effects of capital structure, including interest payments and debt. This calculation provides a clear view of a firm's operational performance by focusing solely on the cash generated by its core business operations. In contrast, Levered Free Cash Flow provides insights into the cash flow available to equity holders after accounting for interest payments, emphasizing the impact of the company’s debt. Operating Cash Flow is related to the cash generated from operating activities but does not reflect the overall cash available to investors since it can still be influenced by debt obligations. Free Cash Flow to Equity also incorporates interest payments, as it determines the cash flow available to equity shareholders after considering all expenses, including debt servicing.

Unlevered Free Cash Flow is the correct method because it measures a company's cash flow without considering the effects of capital structure, including interest payments and debt. This calculation provides a clear view of a firm's operational performance by focusing solely on the cash generated by its core business operations.

In contrast, Levered Free Cash Flow provides insights into the cash flow available to equity holders after accounting for interest payments, emphasizing the impact of the company’s debt. Operating Cash Flow is related to the cash generated from operating activities but does not reflect the overall cash available to investors since it can still be influenced by debt obligations. Free Cash Flow to Equity also incorporates interest payments, as it determines the cash flow available to equity shareholders after considering all expenses, including debt servicing.