What Is Unlevered Free Cash Flow?

Last Updated July 1, 2026

Revenue, profit, and EBITDA can tell you a lot about a company’s performance, but they don’t tell you how much cash the business is actually generating. That’s where unlevered free cash flow comes in.

This helpful metric provides business owners, investors, and lenders with more insight into a company’s health beyond an income statement. Unlevered free cash flow removes the impact of debt, providing a clearer picture of how much cash a business brings in.

Learn how unlevered free cash flow works, what it tells you, and how to convert EBITDA and revenue into this metric.

What Is Unlevered Free Cash Flow?

Unlevered free cash flow is a type of business cash flow that looks at how much a business has left after paying for operations and growth. This is the cash a company generates without accounting for debt payments. In other words, it measures the cash available to all capital providers, including both lenders and equity investors.

Because it excludes debt, unlevered free cash flow gives you a clearer picture of a company’s underlying operating performance. Two businesses with similar operations but different debt levels can have very different net income figures. Looking at unlevered free cash flow normalizes those differences so you can measure business success more objectively.

Benefits of Finding Unlevered Free Cash Flow

Because it focuses on cash generated from operations before debt payments, unlevered cash flow highlights a company’s earning power. That’s helpful for:

• Company comparisons: As an investor, if you see that two companies operate in similar markets and have roughly the same revenue, they could still carry different debt loads. If you remove financing decisions from the equation, you can make more meaningful comparisons between the businesses.
• Understanding performance: Debt makes it harder to understand whether growth came from efficient operations or favorable financing. Unlevered free cash flow helps business owners understand whether operations are generating enough cash to support their goals. It can even uncover operational issues that strong earnings supports can hide.
• Business valuations: Buyers, investors, and financial institutions often use projected cash flows to estimate a company’s value. It’s no wonder that valuation models rely on unlevered free cash flow, since it represents the cash available to all capital providers.
• Funding decisions: Should you take on debt or bring in an investor? It’s hard to make solid financial decisions without the right insight. For example, if your company is considering an equity injection, understanding its underlying cash-generating ability can help you decide whether you even need outside capital.
• Evaluating capital investments: All businesses need to invest in equipment and other assets. Since an unlevered free cash flow calculation accounts for capital expenditures, it provides a more complete picture of how those investments affect available cash. That’s especially helpful if you’re evaluating fixed assets vs. current assets. A company may report healthy profits while major capital investments reduce the actual cash available for other business needs.

How to Calculate Unlevered Free Cash Flow

Learning how to calculate unlevered free cash flow will help you better understand a business, whether you’re an owner or an investor. It’s an essential consideration if you’re learning how to sell your business, but also if you want to make wise investments.

Unlevered Free Cash Flow Formula

The standard formula for unlevered free cash flow is as follows:

EBIT X (1 − Tax Rate) + Depreciation and Amortization − Capital Expenditures − Changes in Working Capital = Unlevered Free Cash Flow

This formula starts with operating income, adjusts for taxes, adds back non-cash expenses, and subtracts the cash invested in assets and day-to-day operations.

For example, let’s say a company reports:

• EBIT: $800,000
• Tax rate: 25%
• Depreciation and amortization: $100,000
• Capital expenditures: $150,000
• Increase in working capital: $50,000

First, plug in the EBIT and tax rate:

$800,000 x (1 – 0.25) = $600,000

Then complete the unlevered free cash flow calculation:

$600,000 + $100,000 – $150,000 – $50,000 = $500,000

Unlevered free cash flow would be $500,000.

Unlevered vs. Levered Free Cash Flow

Unlevered and levered free cash flow are both helpful enterprise and small business KPIs, but you use them for different purposes. If you’re comparing unlevered vs. levered free cash flow, the primary difference comes down to debt.

Unlevered free cash flow measures the cash generated by a business without considering interest payments and other financing obligations. Because debt is excluded, this metric is used for:

• Business valuations
• Mergers and acquisitions analysis
• Comparing companies with different debt levels
• Long-term forecasting

On the flip side, levered free cash flow calculates the cash remaining after the company pays debt-related expenses. This metric is more common for evaluating:

• Dividend capacity
• Share repurchases
• Equity returns
• Short-term financial flexibility

Both metrics have value, so one isn’t better than the other. Unlevered free cash flow is more useful for understanding operating performance and business value, while levered free cash flow is better for assessing shareholder value and dividend potential.

How to Get From Revenue to Unlevered Free Cash Flow

Revenue is helpful, but high earnings don’t automatically translate into strong cash generation. That’s why it’s important to understand the difference between cash flow vs. revenue. Revenue tells you how much a business earned from sales, but not how much cash it kept after paying its expenses.

If you have revenue figures, you can easily convert revenue into unlevered free cash flow with this formula:

(Revenue − Operating Expenses) X (1 − Tax Rate) + Depreciation and Amortization − Capital Expenditures − Changes in Working Capital = Unlevered Free Cash Flow

So, if a company has:

• Revenue: $5,000,000
• Operating expenses: $3,800,000
• Tax rate: 25%
• Depreciation and amortization: $150,000
• Capital expenditures: $200,000
• Increase in working capital: $100,000

First, calculate EBIT:

$5,000,000 − $3,800,000 = $1,200,000

Next, apply taxes:

$1,200,000 × (1 − 0.25) = $900,000

Then complete the unlevered free cash flow calculation:

$900,000 + $150,000 − $200,000 − $100,000 = $750,000

The company generated $750,000 in unlevered free cash flow from $5 million in revenue.

How to Convert EBITDA to Unlevered Free Cash Flow

Many analysts start with EBITDA when calculating unlevered free cash flow because it provides a quick view of profitability before interest, taxes, depreciation, and amortization.

Use this formula to turn EBITDA into unlevered free cash flow:

BIT × (1 − Tax Rate) + Depreciation and Amortization − Capital Expenditures − Changes in Working Capital = Unlevered Free Cash Flow

Suppose a company reports:

• EBITDA: $1,000,000
• Depreciation and amortization: $100,000
• Tax rate: 25%
• Capital expenditures: $150,000
• Increase in working capital: $50,000

First, calculate EBIT from EBITDA, using the following formula:

EBITDA – Depreciation – Amortization = EBIT

$1,000,000 − $100,000 = $900,000

Next, apply taxes:

$900,000 × (1 − 0.25) = $675,000

Then complete the unlevered free cash flow calculation:

$675,000 + $100,000 − $150,000 − $50,000 = $575,000

The result is $575,000 of unlevered free cash flow.

In-Summary: Unlevered Free Cash Flow

Whether you’re evaluating a business or preparing for a sale, unlevered free cash flow is a useful metric for understanding a company’s financial performance. Unlike revenue or EBITDA alone, it shows how much cash a company generates from its operations before financing decisions come into play.

Of course, no single metric can tell the entire story. Always combine unlevered free cash flow with other indicators, like revenue and EBITDA, to understand where your business stands today and where it may be headed tomorrow.

Michael McCareins

Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.