How should you classify expected returns on pension plan assets for FCF calculations?

In the context of Free Cash Flow (FCF) calculations, expected returns on pension plan assets should be excluded from the calculations. This is because FCF is focused on the cash generated by a company's operations, which is available for distribution to stakeholders, including equity and debt holders.

The expected returns on pension plan assets are typically considered non-operating in nature. They represent investment income rather than a direct cash inflow from the company's core business operations. Since FCF aims to capture the cash generated through operational activities, which is pertinent for assessing the financial health and performance of the company, including expected returns on pension plan assets could distort this measure.

Therefore, excluding these returns is the correct approach to ensure that FCF reflects only the cash flows that the business generates from its operating activities. This helps maintain a clear focus on operational efficiency and profitability, which is essential for stakeholders making investment decisions based on FCF metrics.