Which formula accurately describes the progression from revenue to unlevered FCF?

The correct choice outlines a comprehensive approach to arriving at unlevered free cash flow (FCF) from revenue. It accurately breaks down the progression through various financial concepts and metrics, highlighting vital steps in the calculation.

Starting with revenue, the formula first subtracts Cost of Goods Sold (COGS) to derive gross margin (GM). This is a critical first step as it reflects the direct costs associated with the goods sold, providing insight into profitability. The next part, where gross margin is reduced by operating expenses to calculate Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), is significant as it shows the overall operational efficiency before non-operational expenses are accounted for.

Following EBITDA, the formula accounts for Depreciation and Amortization (DA) to arrive at Earnings Before Interest and Taxes (EBIT). This transition is essential because it includes non-cash expenses that affect net income but do not impact cash flow directly. The calculation of Net Operating Profit After Tax (NOPAT) is then performed, incorporating the tax rate (TR). This marks a pivot into the after-tax operating performance of the business, crucial for understanding the cash available to all investors, both equity and debt holders.

From NOPAT