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.