What is Cash Flow After Taxes?

Cash flow after taxes is the amount of net cash flow relating to operations that remain after all related income tax effects have been included. It is usually calculated by adding back all non-cash charges to net income. This measurement is a good way to determine whether a business is generating positive cash flows after the effects of income taxes have been included.

How to Calculate Cash Flow After Taxes

To calculate cash flow after taxes, add together the reporting entity’s net income, depreciation expense, amortization expense, and any impairment charges. The formula is as follows:

Net income + Depreciation + Amortization + Impairment charges = Cash flow after taxes

Example of Cash Flow After Taxes

As an example of cash flow after taxes, a business reports $10,000 of net income. It also has $15,000 of depreciation and $5,000 of amortization, which results in cash flow after taxes of $30,000. The calculation is:

$10,000 Net income + $15,000 Depreciation + $5,000 Amortization
= $30,000 Cash flow after taxes

Problems with Cash Flow After Taxes

A key concern with cash flow after taxes is that it does not account for cash expenditures to acquire fixed assets. In a capital-intensive industry, capital costs can comprise a substantial part of all cash outflows. In fact, capital costs can be so large that a business has to borrow additional cash to pay for them, leaving essentially no cash flow to be used for other purposes.