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

The meaning of a guarantee covers a legal and financially-binding agreement signed between three parties involved in real estate or financial transactions. In this document, typically ...

Tax-free exchange that allows a seller two years after escrow closes on his former principal personal residence to buy like-kind property and defer taxes. Profits from the sale of a ...

(1) Cash revenue from product sales or services rendered less cash expenses. It is different from accrual earnings. (2) The money available after deducting operating expenses and mortgage ...

House designed and zoned for one-family use. Other dwellings may be attached to a single family dwelling, but do not share the same plumbing, heating, or electrical system. Single family ...

Word, or group of words, that identifies a business or one of its products. The name is registered with U.S. Patent Office and provides legal protection for an indefinite number of renewals ...

In short, an overage means a surplus or an excess of money. An overage can present itself at a property at an auction where the asset has gone over the asking price. Suppose there’s a ...

Privilege of a real estate investor or lender to participate in the profitability generated from property. This is in addition to any principal, interest, or dividends. ...

Market Analysis in the Real Estate Market is basically research done concerning specific properties in relation to the overall current climate of the real estate industry. A good ...

Giving of a promise or guarantee to the receiver to instill confidence. ...

Popular Real Estate Questions