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Unlevered Free Cash Flow

Unlevered free cash flow represents the cash generated by a company before accounting for interest payments or tax considerations.

Understanding unlevered free cash flow

Unlevered free cash flow (UFCF) represents a company's capacity to produce cash flow from its operations while factoring in capital expenses. This measure is obtained by subtracting capital expenditures from operating cash flow. It remains "unlevered," disregarding the company's debt obligations. UFCF serves as a pivotal metric for evaluating a company's financial health and attractiveness to potential investors.

Calculating unlevered free cash flow

Determining unlevered free cash flow (UFCF) is crucial for evaluating a company's financial robustness and its cash flow generation capability. UFCF is computed as the sum of net income and depreciation or amortization, deducting capital expenditures. This "unlevered" metric excludes the company's debt load, facilitating comparisons across companies of varying sizes and debt structures.

Applications of unlevered free cash flow

Unlevered free cash flow (UFCF) serves as a financial gauge utilized by companies to appraise their operational cash flow. By subtracting capital expenses from operating cash flow, companies gauge their cash generation ability, independently of their debt's influence.

Unraveling the dissimilarity between unlevered and levered free cash flow

Unlevered free cash flow (UFCF) demonstrates the cash flow a company could generate without any debt or interest expenses. On the other hand, levered free cash flow (LFCF) mirrors the cash flow if all debt and interest expenses were removed while maintaining the existing debt level. The variance between UFCF and LFCF primarily lies in the inclusion of debt costs.