1. What is Levered Free Cash Flow?

Levered Free Cash Flow (LFCF) is a measure of the cash available to the company's equity holders after paying interest on debt and making necessary capital expenditures. It represents the cash flow that can be distributed to shareholders after all obligations have been met.

2. How Does the Calculator Work?

The calculator uses the Levered Free Cash Flow formula:

Where:

• \( NI \) — Net Income: The amount of money a company has earned or lost after all expenses, taxes, and other costs
• \( D\&A \) — Depreciation & Amortization: Accounting methods used to allocate the cost of assets over their useful lives
• \( \Delta NWC \) — Change in Net Working Capital: Difference between current assets and current liabilities from one period to another
• \( CAPEX \) — Capital Expenditure: Funds spent on acquiring, maintaining, or improving long-term assets
• \( NB \) — Net Borrowing: Difference between new debt taken on and debt repaid during a specific period

Explanation: The formula calculates the cash flow available to equity holders by starting with net income, adding back non-cash expenses, adjusting for working capital changes, subtracting capital investments, and accounting for net borrowing activities.

3. Importance of LFCF Calculation

Details: Levered Free Cash Flow is crucial for investors and analysts as it measures a company's ability to generate cash flow available to equity holders after meeting all financial obligations. It's used in equity valuation, dividend policy decisions, and assessing a company's financial health from a shareholder perspective.

4. Using the Calculator

Tips: Enter all values in dollars. Net Income, Depreciation & Amortization, and Capital Expenditure should be positive values. Change in Net Working Capital and Net Borrowing can be positive or negative depending on whether they represent increases or decreases.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between levered and unlevered free cash flow?
A: Levered free cash flow is after debt payments (interest and principal), while unlevered free cash flow is before debt payments and represents cash available to all investors.

Q2: Why is LFCF important for investors?
A: LFCF shows how much cash is available for dividends, share buybacks, or reinvestment after all obligations, making it a key metric for equity valuation.

Q3: Can LFCF be negative?
A: Yes, negative LFCF indicates the company doesn't generate enough cash to cover its capital expenditures and debt obligations, which may require external financing.

Q4: How often should LFCF be calculated?
A: Typically calculated quarterly and annually alongside financial statements to track cash flow trends and financial health.

Q5: What are the limitations of LFCF?
A: LFCF can be volatile, may not reflect future performance, and can be influenced by accounting choices and one-time events.