What item is typically included when calculating Free Cash Flow for an unlevered DCF?

In the context of calculating Free Cash Flow for an unlevered Discounted Cash Flow (DCF), depreciation and amortization are included because they represent non-cash expenses that reduce taxable income but do not impact cash flow directly. By adding back these expenses to net income, you arrive at a more accurate picture of the actual cash generated by the business operations.

Unlevered Free Cash Flow is designed to assess a company's cash flows without considering the effects of capital structure—such as interest expenses—which is why net interest expense is typically excluded. Non-recurring revenue items may distort a company's ongoing operations and therefore are often excluded in this calculation. Payables and receivables adjustments relate to changes in working capital, which, while important, may not be directly connected to the core operations that Free Cash Flow seeks to measure.

Thus, depreciation and amortization stand out as a critical component of the Free Cash Flow calculation, ensuring that the cash flow reflects a more comprehensive view of economic performance before financing considerations are introduced.