What Is Levered Free Cash Flow (LFCF)?

Levered free cash flow (LFCF) is the amount of money that a company has left remaining after paying all of its financial obligations. LFCF is the amount of cash that a company has after paying debts, while unlevered free cash flow (UFCF) is cash before debt payments are made.

Levered free cash flow is important because it is the amount of cash that a company can use to pay dividends and make investments in the 🔜business.

Formula and Calcu𓄧l🌸ation of Levered Free Cash Flow (LFCF)

$\begin{aligned}&LFCF=EBITDA-\Delta NWC-CapEx-D\\&\textbf{where:}\\&\text{EBITDA}=\text{Earnings before interest, taxes,}\\&\qquad\qquad\quad\text{ depreciation, and amortization}\\&\Delta\text{NWC}=\text{Change in net working capital}\\&\text{CapEx}=\text{Capital expenditures}\\&\text{D}=\text{Mandatory debt payments}\end{aligned}$​LFCF=EBITDA−ΔNWC−CapEx−Dwhere:EBITDA=Earnings before interest, taxes, depreciation, and amortizationΔNWC=Change in net working capitalCapEx=Capital expendituresD=Mandatory debt payments​

What LFCF Can Tell You

Levered free cash flow is a measure of a company’s ability to expand its business and to pay returns to 澳洲幸运5官方开奖结果体彩网:shareholders (澳洲幸运5官方开奖结果体彩网:dividends or buybacks) via the money generated through operations. It may also be used as an indicator of a company’s ability to obtain additional capital through financing.

If a company already has a significant amount of debt and has little in the way of a cash cushion after meeting its obligations, it may be difficult for the company to obtain additional financing from a lender. If, however, a company has a♏ hea𝓡lthy amount of levered free cash flow, it then becomes a more attractive investment and a low-risk borrower.

Even if a company’s levered free cash flow is negative, it does not necessarily indicate that the company is failing. It may be the case that the company has made substantial 澳洲幸运5官方开奖结果体彩网:capital investments that have yet to start paying off.

As long as the company is able to secure the necessary cash to survive until its 澳洲幸运5官方开奖结果体彩网:cash flow increases, a temporary period of negative levered f🔯ree cash flow is both survivable and acceptable.

What a company chooses to do with its levered free cash flow is also important to 澳洲幸运5官方开奖结果体彩网:investors. A compan♏y may choose to devote a substantial amount of its levered free cash flow to dividend payments or for investment in the company. If,🅠 on the other hand, the company’s management perceives an important opportunity for growth and market expansion, it may choose to devote nearly all of its levered free cash flow to funding potential growth.

Levered Free Cash Flow ♒(LFCF) vs. Unlevered Free Cash Flow (UFCF🔯)

Levered free cash flow is the amount of cash a business has afterꦉ paying debts and other obligations. Unlevered free cash flow (UFCF) is the amount of cash a company has prior to making its debt payments. UFCF is calculated as EBITDA minus CapEx minus working capital minus taxes.

LFCF is the cash f🔯low available to pay shareholders, while UFCF is the mon𝔉ey available to pay shareholders and debtholders. Levered free cash flow is considered the more important figure for investors to watch, as it’s a better indicator of a company’s profitability.

The Bottom Line

Levered free cash flow (LFCF) is the amount of money that a company has left remaining after paying all of its financial obligations൲. Since it’s the a✃mount of cash that a company has after paying debts, it’s important because LFCF is what a company can use to pay dividends and invest in itself.