What is the Difference Between Levered and Unlevered Free Cash Flow?

The main difference between levered and unlevered free cash flow lies in the treatment of expenses, specifically financial obligations such as interest payments and debt repayments. Here are the key differences between the two:

Levered Free Cash Flow: This represents the amount of cash a business has after meeting its financial obligations, such as interest payments and debt repayments. It is calculated as:
Unlevered Free Cash Flow: This refers to the cash flow a business has before paying its financial obligations. It is calculated as:

Unlevered free cash flow provides a view of the company's enterprise value, which is a measure of the company's total value. On the other hand, levered free cash flow demonstrates a company's cash flow after satisfying its financial obligations and is representative of the equity value of a company's capital structure. Both levered and unlevered free cash flows are considered discounted cash flows (DCF), which attempt to measure how much value a business creates.

On this page

What is the Difference Between Levered and Unlevered Free Cash Flow?

Comparative Table: Levered vs Unlevered Free Cash Flow

The main difference between levered and unlevered free cash flow lies in the financial obligations they consider. Here is a table summarizing the differences:

Levered Free Cash Flow	Unlevered Free Cash Flow
Represents the amount of cash a business has after meeting its financial obligations.	Represents the amount of cash a business has before paying its financial obligations.
Takes into account interest expenses, capital expenditures, operational expenses, and taxes.	Does not consider interest expenses and is attributable to all stakeholders in a company.
Demonstrates a company's cash flow after satisfying its financial obligations.	Provides a look at the company's enterprise value.
Can be found on the balance sheet.	Can be found on the balance sheet.
Indicates how much cash is available for equity holders after all debt payments have been made.	Indicates how much cash is available for all stakeholders without considering the company's debt burden.

Both levered and unlevered free cash flows are considered discounted cash flows (DCF), which attempt to measure how much value a business creates. The choice between levered or unlevered funds for the free cash flow amount in your DCF analysis has a significant impact on your future valuation.

Guilherme Mazui

Guilherme Mazui is graduated in journalism from the Federal University of Minas Gerais (UFMG) and a master's degree in Communication from the University of São Paulo (USP). In addition, he has experience in advertising writing and has worked as a content editor in several companies.