Skip to content
Scrim
Learn/DCF Valuation/Module 5
5.1·6 min read

Unlevered vs. Levered Free Cash Flow

UFCF is cash to all investors and pairs with WACC → enterprise value. LFCF is cash to equity and pairs with cost of equity → equity value.

By the end you can
  • ✓Distinguish UFCF from LFCF
  • ✓Match each to its discount rate and the value it produces
  • ✓Explain why the standard DCF is unlevered

Just as we matched metrics to or with multiples, comes in two flavors depending on who the cash belongs to.

Unlevered FCF (UFCF)
  • ›Cash from core operations to ALL investors
  • ›BEFORE any debt service (no interest)
  • ›Discount at
  • ›Produces
  • ›The standard DCF cash flow
Levered FCF (LFCF)
  • ›Cash available to EQUITY only
  • ›AFTER interest and debt repayment
  • ›Discount at
  • ›Produces
  • ›Used in specific cases (e.g. banks, LBOs)
UFCF=EBIT×(1−t)+D&A−CapEx−ΔNWC\text{UFCF} = \text{EBIT} \times (1 - t) + \text{D\&A} - \text{CapEx} - \Delta \text{NWC}
Start from tax-affected operating profit; add back non-cash D&A; subtract real cash uses (CapEx, working capital).
Why unlevered is the default

Because is before interest, it doesn't depend on how the company is financed. That makes the valuation clean and comparable, and it produces directly. The 'standard DCF' people mean is almost always the unlevered DCF.

Check yourself

You discount unlevered free cash flows. Which discount rate and which value result?

← Previous · 4.4
Reading History: LTM Mechanics
Next · 5.2 →
Building UFCF, Line by Line