What is an alternate way to calculate levered FCF?

What is an alternate way to calculate levered FCF?

• A. Net Income + D&A - Change in Working Capital - CapEx
• B. Cash Flow from Operations minus CapEx minus mandatory debt payment
• C. EBITDA - Taxes - CapEx
• D. EBIT*(1 - tax) + D&A - CapEx

Answer: (B)

Levered free cash flow is the cash available to equity holders after the company has met its debt obligations. The straightforward way to estimate it is to take Cash Flow from Operations, subtract capital expenditures, and also subtract mandatory debt payments. This shows how much cash is left for shareholders after servicing debt (ignoring any new debt issuances). Other options mix in items that don’t reflect debt service. Starting from net income and adding back non-cash charges while subtracting working capital and CapEx omits the burden of debt repayments. Using EBITDA minus taxes and CapEx ignores the cash effects of taxes and debt. EBIT after taxes plus D&A minus CapEx mirrors unlevered cash flow to the firm, not cash flow available to equity after debt.

Levered free cash flow is the cash available to equity holders after the company has met its debt obligations. The straightforward way to estimate it is to take Cash Flow from Operations, subtract capital expenditures, and also subtract mandatory debt payments. This shows how much cash is left for shareholders after servicing debt (ignoring any new debt issuances).

Other options mix in items that don’t reflect debt service. Starting from net income and adding back non-cash charges while subtracting working capital and CapEx omits the burden of debt repayments. Using EBITDA minus taxes and CapEx ignores the cash effects of taxes and debt. EBIT after taxes plus D&A minus CapEx mirrors unlevered cash flow to the firm, not cash flow available to equity after debt.