Investment Banking Interview Question Explained - UFCF vs CFO–CFI

A common investment banking and private equity interview is question: How does Unlevered Free Cash Flow (UFCF) relate to the cash-flow-statement method (CFO – CFI)? In this video, we walk through it step by step, show when they match, when they diverge with interest, and answer whether CFO is levered or unlevered. If you want to go deeper, check out our Accounting Deep Dive course: https://finance-able.com/courses/acco... Chapters 0:00 Intro 0:30 Step 1: Standard Unlevered Free Cash Flow (UFCF) calculation 1:59 Step 2: Calculating FCF via Cash Flow Statement (CFO – CFI) 2:50 Connecting the two approaches 3:59 Difference between UFCF and CFO – CFI when interest is present 4:25 Interview Q1 - UFCF vs the CFS method (CFO – CFI)—which is “right” and why? 5:53 Interview Q2 - Is CFO levered or unlevered? Full walkthrough We first build UFCF from operating performance: start with EBIT, apply cash taxes, add back D&A, adjust for ΔNWC, and subtract CapEx—capturing the business’s core, pre-financing cash generation (EBIT(1–T) + D&A – ΔNWC – CapEx). Then we show the statement route: begin at Net Income, add back D&A, adjust ΔNWC to get CFO, and subtract CapEx in CFI—i.e., CFO – CFI. With no interest, both methods land on the same number (different paths, same economics). Introduce interest and the CFO – CFI path becomes levered under U.S. GAAP because Net Income is after interest; the bridge to UFCF is after-tax interest (e.g., subtract Interest × (1–T) to move from UFCF to CFO – CFI). That’s why, under U.S. GAAP, CFO is levered; IFRS classification can differ, but we stick to U.S. GAAP here. We’ve got a lot more coming—like & subscribe to stay on top of technicals, modeling, and interview prep! #InvestmentBanking #PrivateEquity #FinancialModeling #Accounting #DCF #FreeCashFlow #UFCF #CashFlowStatement #Valuation #IBInterviews #CorporateFinance #CFO #CapEx #WorkingCapital