Financial modelling terms explained

Unlevered Free Cash Flow

Unlevered free cash flow is a financial metric used to calculate the cash generated by a business before taking interest and taxes into account. In other words, it's a measure of how much cash is generated by a company's core operations (i.e. its business activities that do not include investments in other companies, debt repayments and so on).

What Is Unlevered Free Cash Flow?

Unlevered free cash flow (UFCF) is a measure of a company's ability to generate cash flow from its operations after accounting for capital expenditures. UFCF is calculated as operating cash flow minus capital expenditures. This measure is unlevered, meaning it does not take into account the company's debt burden. UFCF is a key measure of a company's ability to generate cash flow and is used by investors and analysts to assess a company's financial health and attractiveness as an investment.

How Do You Calculate Unlevered Free Cash Flow?

Unlevered free cash flow (UFCF) is an important metric for assessing a company's financial health and its ability to generate cash flow. UFCF is calculated as net income plus depreciation and amortization minus capital expenditures. This metric is unlevered, meaning that it does not take into account the company's debt load. This is important because it allows for a comparison of companies of different sizes and debt levels.

The calculation of UFCF is important for two reasons. First, it allows investors to see how much cash a company is generating on its own, without the burden of debt payments. This can be a useful metric for assessing a company's ability to repay its debt. Second, UFCF can be used to calculate the company's free cash flow yield. This metric measures the amount of cash flow a company is generating relative to its market capitalization. It can be used to compare companies of different sizes and debt levels.

Who Uses Unlevered Free Cash Flow?

Unlevered free cash flow (UFCF) is a financial metric used by companies to assess their ability to generate cash flow from their operations. UFCF is calculated as operating cash flow minus capital expenditures. This metric is important to companies because it allows them to measure their ability to generate cash flow without taking into account the impact of their debt levels.

UFCF is used by companies to make decisions about whether to invest in new projects or acquisitions, and it is also used by investors to evaluate a company's financial health and its ability to repay debt. UFCF can also be used to value a company's stock.

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

The unlevered free cash flow (UFCF) of a company is the cash flow it would generate if it were to pay off all its debt and have no interest expenses. The levered free cash flow (LFCF) of a company is the cash flow it would generate if it were to pay off all its debt and have no interest expenses, but also keep the same level of debt. The difference between UFCF and LFCF is the cost of debt.

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