Should I ignore taxes when modeling free cash flow?

by a searcher from Brigham Young University

2 years ago

When modeling the free cash flow for a business (LLC), is it right to ignore taxes? As the shareholders will pay income and/or capital gains tax once the profits are distributed (either as a salary for owner/manager or dividends/draw for shareholders), I assume there are no income tax cash flows that affect the LLC. Is that a correct assumption? Thanks for any help.

I.e.: Levered FCF = EBITDA - Net Interest Expense - Change in Working Capital - CapEx - Debt Repayments

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intermediary from Boise State University

There are Always taxes. It is best to run a model that estimates the taxes. Then you are treating all the sellers the same. I use free "tax free net of debt" using federal and state tax rates to estimate.

6 days ago | like reply | 0 likes

searcher from MCI-Management Center Innsbruck

No, you cannot. Taxes are cashflow-relevant.

6 days ago | like reply | 0 likes

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