Levered Free Cash Flow Calculator - LFCF, Margin, and Equity Yield

The levered free cash flow calculator turns the income statement and cash flow statement into the cash the operating assets generate for equity holders after the firm has paid tax, served its debt, and reinvested. Use it when you are valuing the equity claim directly, sizing a sustainable dividend, or testing whether a leveraged company can self-fund growth without diluting shareholders.

• • Equity DCF valuation: Convert forecast EBIT, tax, interest, D&A, CapEx, working capital, and net borrowing into a stream of LFCF for a discount-at-cost-of-equity DCF.
• • Dividend coverage check: Compare LFCF to a planned dividend to see whether the firm is funding the payout from operating cash after debt service.
• • Leverage sensitivity: Run scenarios on interest expense and net borrowing to see how the financing section moves the LFCF result.

Levered free cash flow is the equity-holder version of free cash flow, so the formula starts with EBIT, applies the effective tax rate, and deducts the after-tax interest bill. The levered free cash flow calculator isolates the cash that remains.

The closest adjacent measure is the unlevered version, which is built from the same five operating lines but stops before interest, so it can be used to value the firm as a whole; the Free Cash Flow to Firm Calculator gives the unlevered dollar amount and the yield on enterprise value for the same operating forecast.

The calculator starts with EBIT, applies the effective tax rate, deducts the after-tax interest bill, adds back non-cash D&A, then subtracts capital spending and the working capital change. Net borrowing is added at the end so the result reflects the financing section.

• EBIT: Earnings before interest and taxes for the period.
• Tax rate: Effective tax rate applied to EBIT and the interest bill.
• Interest expense: Cash interest for the period, grossed down by the tax rate because interest is tax-deductible.
• Depreciation and amortization: Non-cash charges that reduced EBIT but did not consume cash, added back in the formula.
• Capital expenditures: Cash spent on long-lived operating assets.
• Change in working capital: Cash absorbed by a higher non-cash current asset balance. Enter a release as a negative number.
• Net borrowing: New debt issued minus debt repaid during the period.

EBIT, interest, and the tax rate come from the income statement, while D&A, CapEx, the working capital change, and net borrowing all flow from the cash flow statement. An equivalent form starts from net income: LFCF = Net income + D&A - CapEx - Change in working capital + Net borrowing.

According to Wall Street Prep, levered free cash flow (LFCF) is the residual cash belonging to only equity holders after deducting operating costs, reinvestments, and financial obligations, and is calculated as net income plus depreciation and amortization minus the change in net working capital minus capital expenditures plus net borrowing.

An equivalent form starts from net income rather than EBIT, and the Free Cash Flow to Equity Calculator takes the net-income route to the same LFCF dollar amount when the income statement is clean of non-recurring items.

Levered free cash flow is built from seven lines that span the income statement and the cash flow statement, so a few core ideas keep the result honest and comparable.

Net borrowing is often the most volatile line in the LFCF formula, and a one-year debt refinancing or a one-time buyback funded with new debt can move the LFCF result by tens of percent without changing the operating forecast at all, so pairing the cash result with the Financial Leverage Ratio Calculator shows how much of that swing came from the leverage load.

Pull the income statement, cash flow statement, and market cap from the same period before typing. One period at a time keeps the inputs aligned with the financing section.

1. 1 Choose the period: Use a quarter, fiscal year, trailing twelve months, or forecast period.
2. 2 Enter EBIT, tax, and interest: Copy EBIT and interest expense from the income statement. Use the effective tax rate from the same period.
3. 3 Add D&A, CapEx, and working capital: Pull D&A and CapEx from the cash flow statement. Enter the working capital change as positive when cash was absorbed, and as negative when it was released.
4. 4 Add net borrowing and valuation context: Enter net borrowing as new debt issued minus debt repaid. Add market cap for LFCF yield and diluted shares for LFCF per share.

A manufacturer reports EBIT of $80,000,000, a 25% tax rate, $9,000,000 of interest expense, $25,000,000 of D&A, $40,000,000 of CapEx, and a $10,000,000 working capital build, with $5,000,000 of net new debt, on $400,000,000 of revenue. After-tax EBIT is $60,000,000 and after-tax interest is $6,750,000, so LFCF is $23,250,000.

To set the cost of equity that discounts the LFCF stream in an equity DCF, pair the result with the WACC Calculator so the discount rate matches the firm's debt and equity mix.

Levered free cash flow is the cleanest equity-side cash flow for valuation, so a few specific benefits make the levered free cash flow calculator worth keeping close at hand.

• • Equity DCF ready: The dollar LFCF is the input for a discount-at-cost-of-equity DCF, so the result drops directly into an equity valuation worksheet.
• • Capital-structure aware: The formula deducts the after-tax interest bill and adds net borrowing, so the result reflects the actual cost of debt and the actual financing decisions for the period.
• • Dividend coverage transparency: LFCF is the cleanest cash number to compare against a planned dividend, so the analyst can see when the payout is funded by operating cash versus new borrowing or asset sales.
• • Yield benchmarking: LFCF yield is an equity-side yield that pairs with a cost of equity, an earnings yield, or a peer set median.
• • Per-share cash context: LFCF per share sits next to earnings per share and free cash flow to equity per share on the same share count, which makes per-share comparisons simple.

LFCF is most useful when it feeds an equity-side decision. The dollar amount becomes meaningful when paired with a cost of equity, a forecast period, and a per-share result.

LFCF changes with the interest bill, the net borrowing line, and the reinvestment needs of the operating assets. Review these factors before treating the result as a steady-state number.

• • The basic LFCF formula does not separate mandatory debt principal repayments from optional refinancing, so a year with a large scheduled maturity can show a deep negative net borrowing line that may not repeat.
• • LFCF is a cash flow available to equity holders, not a discretionary cash figure. Required dividend payments, share repurchases, and lease obligations still need to be paid out of the cash the formula produces.

Net borrowing volatility is one of the most common sources of LFCF overstatement or understatement. Average the net borrowing line over a multi-year window for a smoother steady-state number.

According to Aswath Damodaran, levered free cash flow is the cash flow available to equity holders after taxes, reinvestment needs, and debt payments, and is the appropriate cash flow for valuing the equity claim directly.

According to Wikipedia Free cash flow, As described in Wikipedia (citing Ross, Westerfield and Jordan, Fundamentals of Corporate Finance), levered free cash flow is the cash flow available to equity holders after taxes, reinvestment, and debt service, including any new borrowing or debt repayment during the period.

For a dividend coverage check, the LFCF dollar amount is the cleanest numerator to feed into the Dividend Payout Ratio Calculator so the analyst can see when the planned payout is funded by operating cash after debt service rather than by new borrowing or asset sales.