After Tax Cash Flow

It is a measure of financial performance that looks at the company's ability to generate cash flow through its operations. It is calculated by adding back non-cash accounts such as amortization, depreciation, restructuring costs and impairments to net income. IMPORTANCE CFAT is important for investors because it gauges a corporation's ability to pay dividends. The higher the CFAT, the better positioned a business is to make distributions. CFAT also measures the company's financial health and performance over time and in comparison to competitors. CALCULATION Cash flow after taxes isn't a difficult calculation. Once Cash Flow Before Taxes is determined, it's a simple matter to subtract tax liability to determine Cash Flow After Taxes. It's possible that, due to accrued losses deductible in later years, that this after tax cash flow could actually be a positive number and be higher than the cash flow before taxes. STEPS: Determine the cash flow before taxes.

Subtract the income tax liability, state and federal. The result is the Cash Flow After Taxes. Another method of calculating CFAT is: CFAT = Net Income + Depreciation + Amortization + Other Non-Cash Charges They really aren't that different, as you're just adding back cash items that were subtracted for the Cash Flow Before Taxes calculation. In the CFBT calculation, debt service is subtracted from Net Income, as it's a cash outflow. However, the depreciation and interest are both deductible for taxes, and thus are added back to get the CFAT

DERIVATION First, realize different texts use different notation: After-tax Net (Operating) Cash flows (NCF), After-tax Net Operating Cash flows (NOCF), After Tax Cash Flows (ATCF) (ACF), Incremental After Tax Cash Flows (ACF) ( ATCF),

Some basic accounting: A simplified Income Statement Revenues (R) - Operating Expenses (O) - Depreciation (D) - Interest and Financing Expenses (F) = Earnings Before Taxes (EBT) - Taxes ($T) = Earnings After Taxes (EAT)

And if we add back non-cash charges such as Depreciation, we get; Revenues (R) - Operating Expenses (O) - Depreciation (D) = Operating Earnings Before Taxes (OEBT) - Taxes ($TAX) = Operating Earnings After Taxes (OEAT) + Depreciation (D) = Net Cash Flows (after tax net cash flows) (NCF)