What does Levered Free Cash Flow represent in a Discounted Cash Flow (DCF) analysis?

Levered Free Cash Flow represents the cash available to equity holders after all expenses, taxes, and interest payments have been made. This is critical in a Discounted Cash Flow (DCF) analysis when valuing equity, as it reflects the amount of cash that can be distributed to shareholders. By focusing on cash flow that has already accounted for debt servicing, Levered Free Cash Flow provides a clear picture of how much cash is actually available to equity investors.

When conducting a DCF analysis from an equity perspective, Levered Free Cash Flow is utilized because it directly relates to the equity value of a firm. Analysts typically discount these cash flows back to present value using the cost of equity, which mirrors the risks associated with investing in the company's stock. This makes it a fundamental metric for assessing the company's profitability and financial health from an equity holder's viewpoint.

In contrast, Enterprise Value is more related to the overall value of the business, which would consider both equity and debt. Cash flow from operations and net income are also important financial metrics but do not provide the specific insights into cash available to equity holders after debt obligations. Thus, Levered Free Cash Flow is crucial for determining the equity stake's value and ensuring that investors can accurately forecast returns.