![]() ![]() What Changes in a DCF Based on Levered Free Cash Flow? The short answer is that while Levered Free Cash Flow may seem more appropriate initially, setting up a Levered DCF requires additional work and substantial changes to all parts of the analysis, and it produces less consistent results than the Unlevered DCF – so it is rarely worth the time and effort. Normally, when you value a public company, you’re trying to estimate its implied share price, or how much the company’s shares should be worth.īased on that, you might think that Levered FCF sounds more appropriate.Īfter all, since the goal of a valuation is to estimate the company’s implied share price, shouldn’t you use a methodology that is based on only the common shareholders? In other words, it deducts payments to the debt investors (lenders), preferred stock investors, and any other investor groups beyond the common shareholders. The basic difference is that Levered Free Cash Flow represents the cash flow available only to the common shareholders in the company rather than all the investors. The one that generates the most questions and confusion is a Levered DCF based on Levered Free Cash Flow, also known as Free Cash Flow to Equity (FCFE). ![]()
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