20 High-Yield Stocks Undervalued Relative to Levered Free Cash Flow
Published May 20, 2011 on Seeking Alpha

Here we offer an alternative to the widely used Price to Free Cash Flow ratio: Levered Free Cash Flow to Enterprise Value. P/FCF is a very helpful ratio for comparing the price of companies, however there are some drawbacks. Using market cap in the numerator limits comparisons to companies with similar capital structures, and using free cash flow ignores financing costs. For these reasons, we use a ratio of levered free cash flow to enterprise value. Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm’s value from all ownership sources: market cap, outstanding debt, and preferred shares (i.e. the theoretical takeover value).click for expanded image From this value we subtract cash holdings because, in the event of a takeover, that cash would be used towards the takeover price. For this article, we screened for... Read more