Glossary - Unlevered Free Cash Flow
Unlevered Free Cash Flow (UFCF) is a measure of a company's financial performance that shows how much cash is available for all investors, both equity and debt holders, after paying for all expenses, taxes, and investments in working capital and fixed assets. It represents the cash a business generates before taking into account financial leverage (debt), making it a pure measure of a company’s operational efficiency and its ability to generate cash from its core operations.
Also known as
- Free Cash Flow to Firm (FCFF)
Use cases examples
- Financial Statements: The Unlevered Free Cash Flow was calculated by starting with EBIT, then subtracting taxes, and adding back depreciation and amortization before subtracting capital expenditures and changes in working capital.
- Investment Analysis Reports: In assessing the company's valuation, the analyst presented a discounted cash flow model based on the Unlevered Free Cash Flow to determine the enterprise value without the impact of debt financing.
Considerations for investors
- Investors should evaluate UFCF as part of their due diligence process, as it provides insights into the company’s ability to generate cash that could be used for expansions, dividends, or debt repayment without the distortion of financing decisions.
- Comparing the UFCF across similar companies can help investors identify which companies are more efficiently generating cash through their operations.
Considerations for founders
- Understanding the concept of Unlevered Free Cash Flow is crucial for founders, as it helps in assessing the company’s operating performance independent of its capital structure.
- Founders should aim to improve their company’s UFCF as it enhances the attractiveness of the business to both debt and equity investors by showing the potential cash available for distribution.
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