IMPORTANT NOTE TO ALL LESSONS IN THIS SERIES ON THE DCF ANALYSIS:Technically,it is more correct to NOT add back stock-based compensationwhen calculatingUnlevered Free Cash Flow (or Free Cash Flow of any type).With an item like Depreciation or Amortization, the company has actuallyspent cashin some earlier period, and it is now simply allocatingthat initialspendingover many years and recognizing it on the financial statements gradually over time... so even though you add back D&A to calculate Free Cash Flow, you're still reflecting continued spending on assets in the form of Capital Expenditures.With Stock-Based Compensation, however,there was never any big upfront payment. So yes, it is a non-cash charge, but it is a very different TYPE of non-cash charge than D&A because it represents non-cash payment to employees in the current period.Also, issuing Stock-Based Compensation creates dilution and results in more shares outstanding, which reduces the company's implied value per share in the DCF.So we're going to re-do all these lessons andNOTadd back stock-based compensation when calculating FCF. This is going to take a long time because it requires re-recording and editing dozens of lessons, so for now we are just adding this note so you know about this change.Also note thatmany bankers do not understand this conceptand, in practice, will actually add back Stock-BasedCompensation in their analyses. If you get into a debate about this in an interview, we advise you to go with what the interviewer says and not to press the point.http://breakingintowallstreet.com