I have seen that you should subtract all mandatory net debt repayments to get to levered FCF. What about for "non-mandatory" i.e. discretionary debt repayments, should we subtract those as well?
| +266 | Looking to raise a Billion Dollar Fund - College Junior | 41 | 32m | |
| +206 | It doesn’t need to be this way | 29 | 1d | |
| +128 | Career Bankers, Was It Worth It? | 41 | 2s | |
| +127 | Biggest gripe in IB: people with no balls | 37 | 3m | |
| +118 | What to expect during your IB summer internship and how to secure the full-time offer | 6 | 1h | |
| +83 | RBC M&A vs PJT RSSG | 14 | 1d | |
| +75 | I FINALLY DID IT, I GOT A FT OFFER! | 14 | 3h | |
| +65 | Vanderbilt ($$$) / Northwestern ($$$) vs UF ($) | 34 | 18h | |
| +63 | Did I mess up by correcting my VP Publicly? | 20 | 1d | |
| +51 | Feeling really lost in IB | 15 | 18h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
will the money used to repay debt be available to shareholders? no. Do you need only money available to shareholders for levered FCF? yes.
I think your answer is pretty clear.
So that means yes, we should also subtract non-mandatory debt payments for levered FCF?
Yes, any cash flows to non-equity holders need to be subtracted.
Well technically that cash is available to shareholders. The business is simply choosing to use those funds for optional debt repayment.
By this logic, two otherwise identical companies would have different valuations based on their optional debt repayment. This seems dumb (even though i agree thats how youd calc levered free cash flow)
Unlevered free cash flows are much better herep
That is not necessarily illogical.
Depending on how you evolve your capital structure using the discretionary debt repayment, you would inherently change the value of your company.
So two companies that pay down debt differently will be worth different due to factors like debt tax shields and future interest payments even if all other sources of cash flows and mandatory debt repayment schedule are identical.
Voluptas odio quisquam perferendis ut qui voluptas quia. Voluptatum et ut sequi rem. Delectus natus eos officiis ex.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...