Definition of "After-tax cash flow"

Jennifer Dreggors real estate agent

Written by

Jennifer Dreggorselite badge icon

Berkshire Hathaway Executives

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

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

Property deed in which the grantor limits the title warranty to the grantee. A grantor does not warrant a title defect to the property occurring from a happening before the time of his ...

Falsify financial records and statements to misrepresent the financial position and operating results of the business. ...

The definition of adjoining properties describes two or more real estate properties, lots, or parcels that shared a boundary. A property that shares a common border with another is ...

Horizontal supports for the ceiling of a structure. ...

Dehydrated gypsum that is mixed with water to form a rapidly setting material. Plaster of paris sets too rapidly to be practical for most building applications, but it is useful for ...

Amount charged for each unit of rental property. An example of a unit might be square footage of space or an apartment. ...

Space reserved for specified vehicles. For example, an office building may have space available for automobiles of tenants, clients of tenants, and other visitors. Parking facilities may be ...

Foreclosed property is sold via a sheriff's deed. The amount received is used to pay the balance of any obligations against the owner or real estate. ...

Properties that about and actually touch and share a common border. Properties B and C are contiguous. Property A is adjacent to properties B and C, but it is not contiguous. ...

Popular Real Estate Questions