Levered Free Cash Flow

AAA

DEFINITION of 'Levered Free Cash Flow'

The free cash flow that remains after a company has paid its obligations on its debt. The levered cash flow represents the amount of cash left over for stockholders and for investment after all obligations are covered. The levered cash flow can be negative while the operating cash flow is positive if the amount of cash paid to cover obligations exceeds the cash that comes from operations.

BREAKING DOWN 'Levered Free Cash Flow'

A company’s levered free cash flow is a signal of what a company has on hand to use for expansion. A company with a small amount of cash left on hand will have a more difficult time finding funds to pay for its expansion. If the company already has significant amount of debt relative to cash flows it may not be able to sustain further debt levels, since so much of its cash flow is already going toward debt repayment.

If a company does not have much debt it may be able to increase borrowing in order to finance growth. If the company is able to increase cash flows through the debt financing of new assets, it can see an increase in the levered free cash flow, but if it is unable to offset the increase in debt payments by an increase in cash it will wind up with a small or negative levered free cash flow. While stockholders appreciate company growth and will tolerate a certain level of debt, they also expect dividends when a company does have cash remaining on hand.

RELATED TERMS
  1. Funds From Operations (FFO) To ...

    A leverage ratio that a credit rating agency or an investor can ...
  2. Debt Issue

    A fixed corporate or government obligation, such as a bond or ...
  3. Perpetual Subordinated Loan

    A type of junior debt that continues indefinitely and has no ...
  4. Unlevered Free Cash Flow - UFCF

    A company's cash flow before interest payments are taken into ...
  5. Return On Debt - ROD

    1. A measure of a company's performance or net income as related ...
  6. Coverage Ratio

    A measure of a company's ability to meet its financial obligations. ...
Related Articles
  1. Investing Basics

    The Optimal Use Of Financial Leverage In A Corporate Capital Structure

    The amount of debt and equity that makes up a company's capital structure has many risk and return implications.
  2. Bonds & Fixed Income

    Why Companies Issue Bonds

    When companies need to raise money, issuing bonds is one way to do it. A bond functions like a loan between an investor and a corporation.
  3. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  4. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  5. Markets

    Cash: Can A Company Have Too Much?

    Cash is something companies love to have. But if they are not using it there could be problems.
  6. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  7. Markets

    Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.
  8. Markets

    Your Dividend Payout: Can You Count On It?

    We go over several telling factors that can help you answer this question and avoid losses.
  9. Fundamental Analysis

    Taking Stock Of Discounted Cash Flow

    Learn how and why investors are using cash flow-based analysis to make judgments about company performance.
  10. Investing

    Spotting Cash Cows

    We show you why some of these companies stand apart from the herd.
RELATED FAQS
  1. What's the difference between the coverage ratio and the levered free cash flow to ...

    Coverage ratios focus on a company’s ability to manage its debt, while the levered free cash flow to enterprise value ratio ... Read Full Answer >>
  2. What's the difference between levered and unlevered free cash flow?

    The difference between levered and unlevered free cash flow is expenses. Levered cash flow is the amount of cash a business ... Read Full Answer >>
  3. How often should a small business owner go through a bank reconciliation process?

    Small business owners should go through the bank reconciliation process at least monthly, and many business consultants recommend ... Read Full Answer >>
  4. Why is a company's Cash Flow from Financing (CFF) important to both investors and ...

    A company's cash flow from financing activities (CFF) is important to investors and creditors because it depicts how much ... Read Full Answer >>
  5. What metrics can be used when evaluating a telecommunications company to ensure its ...

    Cash flow analysis has been transformed since the widespread introduction of statements of cash flow, and investors have ... Read Full Answer >>
  6. What is the formula for calculating free cash flow in Excel?

    Free cash flow (FCF) is used in fundamental analysis to measure the amount of cash a company generates, after accounting ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!