LFCF = EBITDA - Taxes paid - Capex - Changes in Working Capital - Mandatory Debt Payments Users can arrive at LFCF from EBITDA, net income, or UFCF. There is more than one way of calculating LFCF. In addition, by gauging the current level of debt, users can ascertain a company's ability to raise additional funds through external financing.įormula and Calculation of Levered Free Cash Flow (LFCF) The two figures together tell us whether a company is functioning with a reasonably healthy amount of debt on its books. LFCF is usually given more importance by equity investors as they consider it a better indicator of a company's profitability. The difference between UFCF and LFCF is the financial obligations ( interest and principal). On the other hand, unlevered free cash flow ( UFCF) is the sum available before debt payments are made. Thus, a positive LFCF illustrates a company's ability to cover all financial obligations, distribute dividends, and grow. LFCF is important as it is the amount that can be used to pay back equity investors (through dividends or share buybacks) and reinvest into the business and grow. Investors perceive businesses with positive LFCF as financially healthy. It is also referred to as levered cash flow and abbreviated as LFCF. Levered free cash flow is the amount of cash that a company has remaining after accounting for payments to settle financial obligations (short and long term), including principal repayments.
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