**After tax cash flow** indicates the ability of a company or corporation to generate cash flow through its operating activities.

Basically calculating tax with cash flow is a little complex, but in this article we will know the basic formula of cash flow after tax (CFAT).

So, take a long breath and start reading article.

## What is after tax cash flow

Cash flow after tax shows the financial performance of any company or corporation. It shows the ability and capacity of a company’s cash flow after affecting all taxes.

After tax cash flow is sometimes called **CFAT** is tax which add back non cash charges in net income after calculating tax rate.

First to deduct non cash charges like amortization, depreciation, restructuring costs from income. Then subtract the value of tax from income. It will get the value of net income . After this back added non cash charges.

CFAT is calculated by company analysts and investors. It shows the cash flow after affecting all of the taxes.

In this method, add back non cash expenses to net income. Here the depreciation charge acts like a shield to save from much higher taxes.

But remember a thing, for Calculating profit of project deduct the non cash charge as **depreciation** is necessary.

If you don’t know what depreciation is, then it is declining the value of assets and type of non cash expense. It reduces the value of the company but not actually a cash outflow.

Now Let’s understand from formula and example.

## Example and formula

CFAT **formula** is simple.

After tax cash flow = net income + depreciation + amortization + other non-cash charges

Here net income is:

Net income = earning before tax – tax rate

Also note that:

Earning before tax = operating income – all non cash charges

Using all of these formulas we can easily find CFAT.

Now let’s understand by example.

Assume, a company named “cash flow click” has a project which get operating income of $1 million. Its depreciation value is around $70,000 and according to tax law it **tax rate** is 30%.

Now before taking the project, their investors calculate the overall matric and take decisions accordingly.

So let’s Calculate.

Evening before tax = 10,00,000 – 70,000 = 930,000

Net income = 930,000 – (930,000 * 30%)

= 651,000

Time to calculate after tax cash flow

CFAT = 651,000 + 70,000 = 721,000

If you notice that depreciation here works like a tax shield. It decreases tax value.

## After tax cash flow for investors

CFAT is important for **investors** and analysts both. This calculation indicates whether to wherever Invest or not in the project.

For the company analyst using this formula to know if their company is able to fulfill its cash obligation such as investing in assets, growing working capital etc.

Another one advantage of this metric is it Compare different companies of the same industry and shows the value of the company compared to others.

It is also comparable with different types of industry, but these have different capital and operation.

In the last line I say that CFAT indicates a company’s cash flow after affecting all the taxes.

## Conclusion

So here is the full information regarding **after tax cash flow**.

Now your time, did you liked this post or need more information.

Whatever, tell me in the comment section.