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
In any field, from the corner store or long-term rentals, the potential gross income is the expected revenue earned from a sale or the rendering of services. The potential gross income ...
Direct line of descent as from father to son. An example of a lineal hereditament would be passing of the title of real property by virtue of a will to the first-born son. ...
The maximum pre-approved amount that an individual or business can borrow without preparing a new credit request. It is a safety buffer in the event funds are needed for unexpected ...
Also called "Grey Shell, "Bare Shell," and "Artic Shell," a Cold Shell could be described as the more radical version of a Vanilla Shell. So, what does precisely the Cold Shell definition ...
Rental income received from property that exceeds the costs of owning and maintaining the property. ...
Proportionate share of an item to total items in the population. ...
A judgment of a court issued as a final order after hearing all the evidence and material directly related to some matter before its consideration. A final degree considers al the rights to ...
Provision in an agreement in which its renewal is a matter of course at the end of its initial term. ...
An antenuptial agreement is, as the terms composition states, an agreement that happens before the nuptials, or, in other words, the wedding. The antenuptial agreement is more commonly ...
Have a question or comment?
We're here to help.