Levered Free Cash Flow


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.

  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. ...
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  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. Do you discount working capital in net present value (NPV)?

    Net present value (NPV) calculations should include the discounted value of changes in working capital. This treatment of ... Read Full Answer >>
  4. How is working capital different from fixed capital?

    There are several key differences between working capital and fixed capital. Most importantly, these two forms of capital ... Read Full Answer >>
  5. What can working capital be used for?

    Working capital is used to cover all of a company's short-term expenses, including inventory, payments on short-term debt ... Read Full Answer >>
  6. Do you include working capital in net present value (NPV)?

    Working capital is included in calculating the net present value (NPV) of a company. NPV is the difference between the present ... Read Full Answer >>

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