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
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 ...
A binding arbitration is a way to solve disputes without going to court. An alternative to the more expensive and lengthy legal procedures, a binding arbitration is basically the process ...
One to whom a gift or bequest is made. ...
Legal contract in which the lender controls the pledged property being financed. The agreement describes the property and its location. Of default occurs, the lender may sell the ...
In general terms, a licensee means a person or legal entity who has received authorization or permission to perform a particular activity through another party (the licensor in our case.) ...
Refinancing seems easy to understand but is it really? Here’s a lengthy refinancing definition so you can make up your mind once and for all regarding the exquisiteness of the ...
Under law, a warranty in effect even if not expressly stated. It provides that real property sold is warranted to be appropriate for sale and is in proper condition even if not stated, ...
A closed-end mortgage is a mortgage in which the collateralized property cannot be used as security for another loan. See also open-end mortgage for a better understanding of the ...
English architecture. This style has two levels with the second level typically overlaying the first story. The roof is high and the chimney is sculptured. ...
Have a question or comment?
We're here to help.