What is the difference between levered and unlevered cash flows?

Levered cash flows refer to the amount of cash available to equity shareholders after all expenses, including debt payments, have been accounted for. This means that levered cash flows reflect the cash flows of a company once the obligations towards creditors have been settled. This is important for equity investors, as they are most concerned with the cash that is ultimately available to them after the company has fulfilled its debt obligations.

In contrast, unlevered cash flows represent the cash generated by a business without taking into account any debt-related expenses. They reflect the firm's total cash flows from operations as if it were entirely equity-financed, thus providing a clearer picture of a company's operational efficiency without the effects of capital structure.

Understanding the difference between these two types of cash flows is crucial for financial analysis, as it allows investors to assess the risks and returns associated with the company’s capital structure.