Unlevered Free Cash Flow (UFCF) is a critical financial metric used by investors and financial analysts to evaluate the performance of a business without the impact of its capital structure. This calculator helps users compute the UFCF by taking into account several key financial figures from a company’s income statement and balance sheet.
Formula
The formula to calculate Unlevered Free Cash Flow is as follows:
unlevered free cash flow = EBIT (1 – Tax Rate) + Depreciation & Amortization – Capital Expenditures – Changes in Working Capital
Where:
- EBIT: Earnings Before Interest and Taxes.
- Tax Rate: Represents the corporate tax rate applicable to the company.
- Depreciation & Amortization: Non-cash expenses that account for the depreciation of physical assets and amortization of intangible assets.
- Capital Expenditures: The amount spent on acquiring, upgrading, or maintaining physical assets.
- Changes in Working Capital: Variations in current assets like accounts receivable and inventory, minus changes in current liabilities like accounts payable.
General Conversion Table
To aid in practical applications of the Unlevered Free Cash Flow, below is a table that includes common financial metrics and their typical conversion rates or average values used in industry calculations:
| Metric | Description | Typical Value or Conversion Rate |
|---|---|---|
| Average Corporate Tax Rate | Average rate at which profits are taxed. | 21% |
| Standard Depreciation Rate | Common rate for asset depreciation. | 15% of asset value |
| Typical Capital Expenditures | Usual spending on physical assets. | 10% of total assets |
This table can help users quickly estimate values without performing detailed calculations every time.
Example
Let’s calculate the UFCF for a company with the following financials:
- EBIT: $500,000
- Tax Rate: 21%
- Depreciation & Amortization: $50,000
- Capital Expenditures: $100,000
- Changes in Working Capital: $30,000
Using our formula: UFCF = $500,000 (1 – 0.21) + $50,000 – $100,000 – $30,000 = $345,000 + $50,000 – $100,000 – $30,000 = $265,000
Most Common FAQs
UFCF provides a clear picture of a company’s financial health, free from the influence of debt and financial structures. It is essential for valuations and comparing companies within the same industry.
For accurate and relevant financial analysis, UFCF should be calculated annually as part of financial audits or more frequently during periods of significant financial changes.
Yes, UFCF can be negative if a company’s capital expenditures and changes in working capital exceed its earnings and depreciation. This might indicate a period of heavy investment or operational challenges.