Levered Free Cash Flow Calculator
Calculate Levered Free Cash Flow after operating expenses, capital expenditures, and debt payments. Measure cash available for equity shareholders with charts and breakdowns.
About This Calculator
The Levered Free Cash Flow (LFCF) Calculator helps business owners, investors, and financial analysts determine the amount of cash a company generates after meeting all its financial obligations. LFCF is a critical metric for valuing equity, assessing dividend sustainability, and evaluating a company's capacity for share buybacks or acquisitions.
LFCF is calculated using the formula: LFCF = EBITDA + ΔWorking Capital − CapEx − Mandatory Debt Payments. EBITDA represents the company's operating profitability before capital structure decisions. The change in working capital captures cash tied up in or released from day-to-day operations — an increase in working capital consumes cash (negative change), while a decrease releases cash. Capital expenditures (CapEx) represent investments in long-term assets, and mandatory debt payments reflect contractual debt repayment obligations.
This metric is especially important for leveraged companies where debt service obligations significantly impact free cash flow available to equity holders. A company with consistently growing LFCF demonstrates strong financial health and the ability to generate shareholder value.
Regional Notes
India: Indian companies report under Ind-AS or Indian GAAP. EBITDA is typically calculated from the profit and loss statement. Working capital changes can be found in the cash flow statement under "Changes in working capital." CapEx is disclosed in notes to accounts or the cash flow statement under "Purchase of fixed assets."
US: US companies report under US GAAP (ASC 230). EBITDA can be derived from the income statement, and the cash flow statement provides operating cash flow, changes in working capital, and CapEx. Mandatory debt payments are disclosed in the financing section or debt footnote.
UK: UK companies report under FRS 102 or IFRS. The cash flow statement under FRS 102 Section 7 provides operating cash flows, working capital changes, and investing activities. Debt repayments are shown in the financing section.
Frequently Asked Questions
What is Levered Free Cash Flow (LFCF)?
Levered Free Cash Flow (LFCF) is the amount of cash a company generates after paying all operating expenses, interest, taxes, capital expenditures, and mandatory debt obligations. It represents the cash truly available for distribution to equity shareholders through dividends, share buybacks, or reinvestment.
How is Levered Free Cash Flow calculated?
LFCF is calculated using the formula: LFCF = EBITDA + Change in Working Capital - Capital Expenditures - Mandatory Debt Payments. EBITDA represents earnings before interest, taxes, depreciation, and amortization. A negative change in working capital (increase in working capital) reduces cash flow, while a positive change adds to it.
What is the difference between levered and unlevered free cash flow?
Levered Free Cash Flow (LFCF) subtracts mandatory debt payments from operating cash flow, representing cash available to equity shareholders. Unlevered Free Cash Flow (UFCF) ignores debt payments and represents cash available to all investors including both equity and debt holders. UFCF is typically used for enterprise valuation while LFCF is used for equity valuation.
What is a good Levered Free Cash Flow growth rate?
A Levered Free Cash Flow that grows consistently at 20% annually is considered excellent. At this rate, LFCF doubles every 3.6 years, which could translate to significant stock price appreciation if valuation multiples remain constant. Many high-quality companies compound LFCF at 15-30% annually.
Is negative Levered Free Cash Flow bad?
Not necessarily. Negative LFCF can occur when a company is investing heavily in growth through capital expenditures and working capital. If the negative LFCF stems from negative EBITDA (unprofitable operations), that is a concern. However, high-growth companies often have negative LFCF during expansion phases as they invest in future capacity.
How do investors use Levered Free Cash Flow?
Investors use LFCF to assess a company's financial health and its ability to pay dividends, buy back shares, acquire other businesses, or reduce debt. Consistent LFCF growth indicates a company generates increasing cash for shareholders. Value investors often use LFCF to calculate the price-to-LFCF ratio as a valuation metric.
What is included in mandatory debt payments for LFCF?
Mandatory debt payments include principal repayments on loans, bonds, and other debt instruments that the company is contractually obligated to pay. This typically includes scheduled loan amortization, bond maturities, and lease payments. Interest payments are already accounted for in the EBITDA calculation.