M&A Formula Dictionary: Cash Flow, Valuation, Credit and Returns

Enterprise value, equity value and net debt

Enterprise value describes the value attributable to capital providers on the defined operating-asset basis. Equity value is the residual after senior claims. Include cash, leases, preferred securities, minorities and non-operating assets consistently rather than assuming a universal one-line bridge.

Simplified equity value = Operating EV + excess cash − debt
Net debt = Defined debt − eligible cash

Operating cash flow: UFCF

Unlevered free cash flow is cash generated by operating assets after operating taxes and reinvestment, before financing cash flows. The UFCF guide below provides a worked example and sign conventions.

UFCF = EBIT × (1 − tax rate) + D&A − CapEx − Δ operating NWC

Cost of capital: WACC and beta

WACC uses market-value capital weights and pairs with unlevered cash flow. The Hamada relation is a simplifying approach to relevering equity beta, not a universal model of risky debt.

WACC = E/(D+E) × r_e + D/(D+E) × r_d × (1 − T)
β_L = β_U × [1 + (1 − T) × D/E]

Credit ratios: DSCR and FCCR

Debt coverage definitions are lender-specific. DSCR includes required principal as well as interest; fixed-charge coverage includes whichever additional fixed obligations the agreement defines. Never compare covenant ratios without checking the numerator and denominator.

DSCR = Cash available for debt service / required cash debt service

Terminal value and investor returns

Gordon growth values continuing cash flow; an exit multiple values a terminal earnings measure. MOIC summarizes proceeds per invested dollar, whereas IRR incorporates timing. The simple conversion applies only to one investment and one exit receipt.

TV = FCF_next / (discount rate − perpetual growth)
MOIC = Total proceeds / total invested capital
Single-exit IRR = MOIC^(1 / years) − 1

A practical consistency checklist

The linked formula guides include examples and caveats. All examples are illustrative and do not represent a transaction recommendation.

• Match enterprise cash flows with enterprise discount rates.
• Keep currency, denomination and period definitions consistent.
• Avoid mixing unlevered operating cash flow with cash after debt service.
• Reconcile fees, dividends, cash and other claims exactly once.