Cash Flow After Taxes - CFAT

  

Operations at your company might be going well, making lots of sales and producing a lot of finished goods. But if you don't have an ongoing positive cash flow, your whole operation could come to a halt. Cash flow after taxes (CFAT) is a key metric companies (and analysts) use to measure their ability to generate cash after deducting taxes (should there be any left).

The official formula is: net income (after taxes) plus depreciation and amortization. Depreciation represents the reduction of the value of tangible assets, such as equipment, over time. Amortization refers to the allocation of cost of an asset over time.

So if We Go With The Flow Inc. had $10 million in net income after taxes from selling water pipes last year, and took $500,000 in depreciation and $200,000 in amortization, their CFAT would be $10,700,000. Depreciation and amortization are added back in because they are non-cash expenses reported on the company's income statement, not an actual cash outflow.

CFAT can be a indication whether a company will have enough cash to pay a dividend or other distribution. But companies may have other plans for the cash, such as building a new factory, acquiring another company, or just putting it away for a rainy day. Different industries have different types of cash outflows and depreciation, so it's a good idea to compare CFATs within the same type of business.

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Finance allah shmoop what is cash flow versus earnings Okay

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you think profits or profits right Well not unless you

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spell it P r o p h e t s

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Ask a gandhi or jeff bezos about that All right

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Well in the land of accounting there are aptly named

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accounting profits and there are also cash profits and the

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two of them are often very different Accounting laws skew

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things when it comes to assessing riel cash profits Here's

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out the ceo and founder of give a dog a

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drone A company that specializes in engineering remote control toys

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for your pets built a drone stamping factory for one

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hundred million dollars knowing that it will be worth twenty

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million dollars in scrap value in just four years Well

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for puppy and kitty tech is still high will drone

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sales or steady producing cash profits of fifty million bucks

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earnings and cash flows here are very different In the

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first year when the factory was built the company lost

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big cash money because it had to write one hundred

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Million dollar check to the builder of the factory Yes

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it made fifty million in profits but that year it

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lost fifty million dollars in cash Luckily it had no

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debt and it had one hundred twenty five million dollars

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in the bank Well that bank account went down to

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just twenty five million when they wrote one hundred million

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dollar check But it gradually filled back up to seventy

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five million by the time that year was done fifty

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million of profits and that fifty million in cash Yeah

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that that helps that floated right back in there Okay

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so the cash that year was volatile It was a

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hundred twenty five million to start But then i went

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down to twenty five million after the factory purchase than

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end up a year later with fifty million added to

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their coffers and gas profits from operation leaving them with

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seventy five million bucks in the bank got all that

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profits perspective and a cash flow perspective on the notion

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of profit Simply put it isn't fair for the company

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Tohave a view that the one hundred million dollars factory

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as an expense should all hit the profits line all

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in one year as if they bore the burden of

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all that factory cost in one year and then showing

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that factory in value to the tune of twenty million

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dollars a year for for four years until it will

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then sell it for scrap for twenty million bucks So

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five years And it looks like this But in your

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won the company loses one hundred million dollars in cash

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lined appreciation of that hundred million dollar factory properly shows

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