What is Levered Free Cash Flow (LFCF)?
Levered Free Cash Flow represents the cash flow available to equity holders after accounting for all operating expenses, capital expenditures, and debt obligations. It shows how much cash the company generates for shareholders after meeting all its financial obligations.
Calculation Formula
LFCF = Net Income + Depreciation + Non-Cash Charges - ΔWorking Capital - CapEx - Interest - Principal Repayments + New Debt
Key Components
- Operating Cash Flow: Cash generated from core business operations
- Capital Expenditures: Investments in fixed assets and equipment
- Interest Payments: After-tax cost of debt financing
- Principal Repayments: Debt principal payments reducing outstanding debt
- New Debt Proceeds: Cash received from new borrowings
Interpretation
- Positive LFCF: Company generates cash for shareholders (dividends, buybacks, growth)
- Negative LFCF: Company consumes cash, may need external financing
- Growing LFCF: Indicates improving financial performance and shareholder value creation
- Volatile LFCF: May indicate business cyclicality or financial instability
Uses and Applications
- Equity valuation using DCF models
- Dividend capacity and sustainability analysis
- Financial health assessment for leveraged companies
- Comparing cash generation across similar companies
- Strategic decision making for capital allocation