Short definition: Unlevered free cash flow (UFCF) is the cash flow generated by a company’s operations that is available to all capital providers, including both debt and equity holders.
Explanation: UFCF is calculated before interest payments on debt are made and represents the cash flow that is available to the company to reinvest in its business, pay down debt, or distribute to shareholders. It is a key metric used in financial modeling and valuation to assess a company’s ability to generate cash flow and its financial health.
Example: UFCF can be calculated as:
UFCF = EBIT (1 – Tax Rate) + Depreciation & Amortization – Change in Net Working Capital – Capital Expenditures
Additional information (optional): UFCF is considered a more accurate measure of a company’s true cash flow generation potential than levered free cash flow (LFCF), which takes into account interest payments and therefore can be influenced by the company’s capital structure.