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Subtracts capital expenditures and debt service from operating cash flow over twelve months, isolating the cash actually available to equity holders after all obligations.
Levered free cash flow (TTM) is the cash left after paying operating costs, investments and interest on debt. It shows how much cash is really available to equity holders.
Levered free cash flow represents the cash remaining after a company has paid all operating expenses, made necessary capital investments, and serviced its debt obligations. This is the true residual cash available to equity shareholders—money that can fund dividends, share buybacks, debt reduction, or growth investments. It's called "levered" because it accounts for the company's debt (leverage) structure.
The calculation:
Levered Free Cash Flow = Operating Cash Flow - Capital Expenditures - Debt Repayments + New Borrowing
A simpler approximation often used:
Levered FCF = EBIT × (1 - Tax Rate) + Depreciation - CapEx - Change in Working Capital - Interest Expense
Why levered free cash flow matters:
- Equity holder perspective: Shows cash available specifically to shareholders after creditors are paid
- Dividend capacity: Levered FCF must cover dividends sustainably
- Buyback funding: Cash available for share repurchases
- Financial flexibility: Indicates ability to pursue opportunities or weather downturns
Levered vs. Unlevered FCF:
- Levered FCF: After interest payments; relevant to equity investors
- Unlevered FCF: Before interest payments; used for enterprise valuation and comparing companies with different debt levels
Interpreting levered FCF:
- Positive levered FCF: Company generates surplus cash after all obligations
- Negative levered FCF: Company consuming cash; may need to raise capital
- Growing levered FCF: Improving financial position and shareholder returns potential
- Levered FCF > Dividends: Dividend is sustainable from operations
Important considerations:
- Debt maturity schedule: Large debt repayments can temporarily depress levered FCF
- Interest rate sensitivity: Rising rates increase interest expense, reducing levered FCF
- Growth vs. maintenance CapEx: Distinguish between required spending and optional growth investment
Track levered FCF trends over multiple years. Consistent positive levered FCF indicates a company generating real value for shareholders beyond just accounting profits.
How it relates
Free Cash FlowFree cash flow is the cash a company has left after paying its everyday costs and the investments needed to keep the business running. It is the money that can be used to pay down debt, pay dividends, buy back shares or invest in new projects.−Interest PaidInterest paid is the cash the company spent on interest for its debt. Higher interest payments usually mean more leverage and less free cash available for other uses.=Levered Free Cash Flow (TTM)
Where it fits
Net IncomeNet income is the final profit after subtracting all expenses, interest and taxes. It is the bottom line of the income statement and represents the earnings available to shareholders.→Operating Cash FlowOperating cash flow is the cash the business generates from its normal day-to-day operations before investing and financing. It shows how much cash is coming in from customers after paying suppliers and operating costs.→Free Cash FlowFree cash flow is the cash a company has left after paying its everyday costs and the investments needed to keep the business running. It is the money that can be used to pay down debt, pay dividends, buy back shares or invest in new projects.→Levered Free Cash Flow (TTM)
Levered Free Cash Flow (TTM)→Cash FlowCash flow represents the actual movement of money into and out of a business, providing a clearer picture of financial health than accounting profits alone.