Question

Hi I was using the formula sales -operating cost-taxes-net investments-change in WC= Free cash flow (in a DCF analysis). While forecasting operating cost should I subtract depreiciation and amortixation from the revenues along with SG&A , R&D and other operating expenses . Or just the regular SG&A and R&D and operating expenses would give me the needed opearting costs.

Answer 1

Depreciation and amortization are non cash expense, hence these must be not be subtracted for calculating free cash flow. However, the tax should be calculated by deducting D&A.