How this calculator works
Levered free cash flow starts from EBITDA and subtracts the cash the business must spend before shareholders see anything: capital expenditure, the increase in working capital and the debt repayments required by loan agreements. Unlike free cash flow to equity, it does not start from net income, so it keeps the rough cash-earnings character of EBITDA while recognising that reinvestment and debt service are real calls on cash. The measure is common in private equity and leveraged buyout analysis, where the question is how much cash is available to service and pay down debt. It still ignores taxes, so it overstates cash for a tax-paying company.
Formula
Levered free cash flow = EBITDA - capital expenditure - working capital investment - mandatory debt repayments. EBITDA = levered free cash flow + capital expenditure + working capital investment + mandatory debt repayments. Each other input can be recovered by rearranging the same identity.
Worked example
EBITDA of $400,000 less $100,000 of capital expenditure, $30,000 of working capital investment and $20,000 of mandatory debt repayment leaves $250,000 of levered free cash flow.
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Frequently asked questions
How does levered free cash flow differ from FCFE?
FCFE starts from profit and makes accounting adjustments, including tax and interest. Levered free cash flow starts from EBITDA and subtracts only the mandatory cash outflows. FCFE is the more precise measure when the income statement and tax details are available.
Why is it called levered?
It is calculated after the effects of debt, namely interest (implicitly, through EBITDA) and mandatory principal repayments. Unlevered free cash flow, by contrast, is measured before debt service.
Should mandatory debt repayment include all debt?
Only the principal the company is contractually required to repay. Optional prepayments are a financing decision rather than a mandatory outflow, so they are usually excluded from the core measure.