Hello all,
I've seen a few debt schedule builds where the available cash that feeds the debt paydown is calculated as follows:
Beginning Cash Balance + LFCF - Min. Cash Balance = Total Cash Available for Debt Repayment
What I'm a little confused grasping is why are we adding LFCF when that's supposed to be the component that's only attributable to only equity investors?
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Let's say you have a personal mortgage.
You earn some gross income, government taxes you, you pay all your living expenses, you pay your interest payments, and what's left is your "LFCF" - or cash in your bank account. And you use that cash in the bank account to pay off any principal that you choose to pay off.
Same concept - you are using cash after taxes and interest that belongs to the equity holder. And you can choose how to allocate that capital (reinvest in the business, dividend, M&A, debt paydown, others)
Thank you! I see choice is the key word.
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