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
Creates a lien against the mortgagor's property, but does not permit a lien against his or her personal assets. See also non recourse. ...
Correcting depreciation by making improvements at less cost than the value added. For example, the management of an aging strip shopping center makes a decision to refurbish the windows and ...
Expected period of benefit used to depreciate business property, plant, and equipment. The guidelines may be developed by the industry or Internal Revenue Service (IRS). ...
Also called real property. Anything permanently affixed to the land, such as buildings, walls, fences, and shrubs, as well as the rights to own or use them. It is distinguished from ...
maintenance procedures conducted to prevent later repairs and furthering a longer useful life. For example, many boilers and burners are cleaned and serviced each year before the winter ...
The portion of a structure providing the primary ground support. Foundations have a foundation wall forming a permanent below grade retaining wall. All modern foundations rely on concrete ...
Founded in 1969 and located in West Palm Beach, FL, NACORE has 3,273 members. Its members consist of anyone managing, administering and/or operating regional real estate departments for ...
The floor of a building closets to the building grade. Normally, the ground floor of a building is the first floor. A ground floor can sometimes be located between the first floor and the ...
The Principle of conformity states that conformity is achieved when all the entities or objects comply to the same standard, rules or laws. This creates a balance and stability between ...
Have a question or comment?
We're here to help.