While line items like revenue or capital expenditures may take center stage in a financial model, small balance sheet movements often carry meaningful weight—especially when calculating Unlevered Free Cash Flow (UFCF). This chapter dives into one such area: changes in Other Assets and Other Liabilities.

These categories often include miscellaneous items that don't fit into traditional buckets like inventory or accounts payable. They might represent prepayments, deposits, legal reserves, or intangible accruals. Though individually minor, together they can shift your cash flow in or out.

In the context of UFCF, here's what matters: we care about the net change in these items from one year to the next. This change either consumes cash (a use) or frees up cash (a source).

• If Other Assets increase, the company used cash to acquire them → negative impact on UFCF;

• If Other Liabilities decrease, the company settled obligations using cash → also a negative impact.

The proper adjustment is:

This formula uses signs carefully. Increasing assets or decreasing liabilities generally reduce UFCF.

These changes may not dominate your valuation, but they are a key part of accuracy. Overlooking them could lead to inflated free cash flow and a misleading enterprise value.

Small details matter. Even seemingly obscure line items like "Other" can significantly affect how much cash a business actually generates and how we value it.