Short definition: Levered free cash flow (LFCF) is the cash flow that remains after a company has met its financial obligations, including interest payments on debt and mandatory debt repayments.
Explanation: LFCF represents the cash flow that is available to equity holders (shareholders) after the company has fulfilled its debt obligations. It is a key metric for investors as it indicates the amount of cash available for dividends, share buybacks, or reinvestment in the business.
Example: LFCF can be calculated as:
LFCF = Net Income + Depreciation & Amortization – Change in Net Working Capital – Capital Expenditures – Mandatory Debt Repayments
Additional information (optional): LFCF is often used in valuation models, such as the discounted cash flow (DCF) analysis, to determine the value of a company’s equity. However, it is important to note that LFCF can be influenced by a company’s capital structure, as companies with higher debt levels will have lower LFCF due to higher interest payments.