Levered Free Cash Flow (LFCF) is a measure of a company's financial situation that indicates the actual cash available for distribution to shareholders and company investment. It is essentially the amount of money that the company has after paying all its expenses and debts. LFCF is important to investors looking to evaluate a company's ability to generate and manage profits by assessing its financial health.

When calculating LFCF, the first step is to take into account the operating cash flow, which is the money earned from the company’s core business activities. Once operating cash flow is determined, non-cash expenses such as depreciation, amortization and non-cash charges are added back to the total. This figure is subtracted by the amount of cash needed to pay for current liabilities such as debt, taxes, lease payments and dividends.

Any money left over after these expenses and debt payments are subtracted from a company’s operating cash flow is called levered free cash flow. It is a key measure of the company’s financial health, as it indicates the cash available for the company to distribute to shareholders or reinvest in the business.

Investors analyzing a company’s performance will use levered free cash flow as well as other financial ratios to determine the company’s ability to generate profits and manage debts. For example, if a company has a negative levered free cash flow, even if operating cash flow is positive, this suggests the company is not managed well and may not be able to cover its debts in the long run.

It is also important to note that levered free cash flow should not be confused with unlevered free cash flow (UFCF), which is the cash available before debt payments are made. While LFCF takes into account the company’s debt payments, UFCF does not. By comparing both metrics, investors can identify whether a company is efficiently managing its debt payments.

Levered free cash flow is an important metric to gauge a company’s financial health and cash flow position, and is essential for investors looking to evaluate a company’s ability to generate and manage profits. It can offer investors a valuable insight into how much money the company has to distribute to shareholders or reinvest into the business. By analyzing levered free cash flow in comparison to unlevered free cash flow, investors can determine whether a company is efficiently managing its debt payments.