How does non-recurring revenue impact the calculation of unlevered FCF?

When evaluating unlevered free cash flow (FCF), it is crucial to focus on the ongoing, recurring cash flows generated by the company's core operations. Non-recurring revenue typically represents one-time gains or revenues that are not expected to happen regularly, such as income from asset sales, settlements, or extraordinary events. Including such revenues in the calculation would provide a distorted view of the company's actual operational performance and cash-generating ability.

By excluding non-recurring revenue, analysts can establish a more accurate and realistic picture of the company's ongoing cash flows, which is essential for valuation and financial analysis. This approach helps in assessing the sustainability of the business and making informed investment decisions. Therefore, excluding non-recurring revenue ensures that the calculated unlevered FCF reflects the true economic performance of the company over the long term.