Introduction
Discounted cash flow (DCF) analysis is a popular tool used by investors and analysts to evaluate the value of an investment. It involves estimating future cash flows, discounting them back to present value using an appropriate discount rate, and then subtracting out any initial investments made. The result is the net present value (NPV) of the investment. One important consideration when performing a DCF analysis is whether to use levered or unlevered free cash flow as the basis for projecting future cash flows. In this article, we will discuss both approaches and how they can affect your results.

What Is Levered Free Cash Flow?
Levered free cash flow (LFCF) is a measure of a company’s ability to generate funds after taking into account its financial obligations such as debt payments and other liabilities. It represents the amount of money available for distribution among shareholders after all expenses have been paid off including taxes, capital expenditures, interest payments on loans, etc. LFCF takes into account both equity financing (equ ity holders' share in profits) and debt financing (debt holders' share in profits). This makes it different from unleveraged free cash flow which only considers equity financing sourcuch as retained earnings or common stock sales proceeds.

What Is Unleveraged Free Cash Flow?
Unleveraged free cash flow (UFCF), also known as “unleveraged operating income” or “operating profit after tax” measures a company's ability to generate funds without considering its financial obligations like debt payments and other liabilities. Unlike LFCF which includes both equity financing sources and debt financing sources, UFCF only considers equity financing sources such as retained earnings or common stock sales proceeds when calculating future expected returns from operations . As such , UFCFs are not affected by changes in leverage ratios that occur due to new borrowings taken up by companies over time .

How Do They Affect Your Results?
The choice between levered vs unlevered free cash flows has significant implications on discounted cash flow valuations since it affects assumptions about future growth rates , cost structure , required return on capital employed , etc., all of which are key inputs into DCFs . When using LFCFs , investors assume that existing levels of leverage will remain constant throughout their projections while with UFCFs they assume that no new borrowings will be taken up during this period . This difference can lead to significantly different results depending upon what type of business you are analyzing - one with high fixed costs requiring significant amounts of borrowing may see higher values under LFCFs than under UFCFs whereas businesses with lower fixed costs may see lower values under LFCFs than under UFCFSs . Additionally , if you expect there could be significant changes in leverage ratios over time then you should consider using adjusted versions of either approach rather than relying solely on either one alone .

Conclusion
When performing discounted cashflow analyses it is important to understand the differences between levered vs unleversed freecashflows so that you can make informed decisions about which approach best suits your needs given your specific situation . While each approach has advantages and disadvantages depending upon what typeof business you're evaluating , generally speaking most analysts prefer using unlevredfreecashflows since these provide more accurate estimatesof expected returnsfrom operations without havingto factorin potentialchangesin leverageratiosovertime