Which statement about Levered Cash Flow is true?

• A. It accounts for financing activities
• B. It Excludes Financing Activities
• C. It Equals Pre-Financing Cash Flow
• D. It Equals Tax-Only Cash Flow

Answer: (A)

Levered cash flow represents the cash left for equity holders after operating performance, taxes, and debt service have been accounted for. Because debt service consists of interest and principal payments, financing activities directly shape this measure. In other words, leverage decisions—how much debt, at what rate, and when it’s repaid—change the amount of cash available to shareholders, so levered cash flow inherently accounts for financing activities.

It isn’t about excluding financing activities—it’s defined by the opposite, showing the impact of financing on cash. It isn’t equal to pre-financing cash flow, which reflects cash flow before any financing effects. And it isn’t merely tax-only cash flow, since it incorporates debt service in addition to operating cash flow and taxes.