Basic Technical Investment Banking Practice Test

Unlevered Free Cash Flow multiples are used with Enterprise Value because these cash flows belong to all providers of capital—both debt and equity—before any debt service. Free cash flow to the firm represents the cash the business generates that is available to pay lenders and shareholders after operating needs and capital expenditures are covered, so the appropriate valuation anchor is the value of the entire enterprise. That value is Enterprise Value, which reflects debt, equity, and other claims on the business. Equity Value would pair with cash flows that are after debt service (levered), since those flows go to shareholders. Net Debt is part of how you compute Enterprise Value, not the multiple basis itself. Levered Free Cash Flow is cash flow to equity after debt SAMPLEpayments, so it aligns with equity-based valuations rather than UFCF multiples.