After-tax Cash Flow
Definition of "After-tax cash flow"
After-tax cash flow is a calculation method for companies’ financial performance to show their ability to generate cash flow through their operations. The after-tax cash flow formula works by adding costs that don’t include cash revenues (depreciation, restructuring costs, amortization, and impairments) to the company’s net income.
What is After-Tax Cash Flow and How it Works?
Through after-tax cash flow, investors can understand the impact taxes have on their profits. This calculation method determines the company’s cash flow for undertaking an investment or project. Because depreciation is a non-cash expense while not being actual cash outflow, it is added to the net income. This is because depreciation acts as a tax shield, even if it is an expense. The same happens to amortization and other non-cash expenses.
The After-Tax Cash Flow Formula:
After-Tax Cash Flow = Net income + Depreciation + Amortization + Other Non-Cash Expenses.
So if we have a project with an operating income of $1 million that has a depreciation value of $90,000, and the company running the project pays a tax rate of 35$, we get the net operating income through the following calculations:
- Firstly, we need to calculate the company’s earnings before taxes.
Earnings before taxes = Operating income - depreciated value
Earnings before taxes = $1 million - $90,000
Earnings before taxes = $910,000
- Secondly, with earnings before taxes, we can calculate the net income.
Net Income = Earnings before taxes - (Tax Rate x Earnings before taxes)
Net Income = $910,000 - (35% x $910,000)
Net Income = $910,000 - $318,500
Net Income = $591,500
- Finally, with the net income, we can use the after-tax cash flow formula to calculate.
After-Tax Cash Flow = Net Income + Depreciation + Other Non-Cash Expenses
After-Tax Cash Flow = $591,500 + $90,000
After-Tax Cash Flow = $681,500
Popular Real Estate Terms
Also called investment property. Real property held by a business for investment potential or in order to earn income by leasing or letting it, rather than for its own use. ...
An interim or provisional court decree, which is not final and can be reversed or amended, normally issued to direct additional proceedings prior to issuing a final decree. For example, an ...
Tax term describing current and necessary business expenses. Ordinary and necessary business expenses do not include long-term capital losses. For example, the XYZ stationary store deducts ...
Individuals who are legally entitled to inherit money and property when someone dies. ...
Payment made by the tenant to the landlord for the right to use property, such as an apartment or office. ...
Method of valuing a property through examination and comparison of recent sales of comparable properties. ...
Maximum credit a prospective buyer may be given. An example is the maximum mortgage a prospective home buyer may receive from the bank. ...
You may have heard the term codicil in a conversation but might have yet to understand it entirely. What’s the codicil definition? “Codicil meaning” refers to a supplement ...
The annuity factor definition is the use of a financial method that shows the value, present or future, of an amount when it is multiplied by a periodic amount. The calculation of an ...
Have a question or comment?
We're here to help.