Define unlevered free cash flow


Unlevered free cash flow or unlevered FCF is a critical part of free cash flow that can be paid to both equity holders and debt holders. In other words, any free cash flow, which is available to be given for stakeholders of a company is called unlevered free cash flow yield.


Free cash flows (FCFs) are the main indicator of a company’s long-term vitality. The fact is that the business must be to become independent: the company must generate enough income to sponsor new projects, pay dividends and pay off debt obligations. The concept of net profit sits firmly in the minds of ordinary people who are not even related to finances or organization management. However, FCFs, despite its simple name that explains the meaning of this term, often cause a lot of questions.

Not only does the calculation formula for virtually every financier have their own, but this indicator is also not required for reporting on accounting standards and US GAAP. In addition to the above, there are several categories of free cash flow, such as leveraged vs unlevered free cash flow, and FCFE.

Finally, this concept can be supplemented with an idea that each of these categories is discounted at different rates when evaluating an asset. In other words, make mental efforts are needed in order to learn these concepts and understand when to use which FCF.

Unlevered free cash flow ratio is practically no different from FCF. This indicator applies to companies that do not have a debt burden. Perhaps its only difference is that as a starting point for the calculations is operating, rather than net profit.

This indicator is cleaner in that it excludes non-operating profits, such as income from the successful sale of company property or, in other words, is not subject to manipulation of the bottom line. To calculate it, analysts will have to work a little, having done a couple of additional calculations.

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