What is Cash Flow After Taxes?

Cash flow after taxes (CFAT) is nearly the same thing as EBITDA, but with taxes left in.

One way to arrive at Cash Flow After Taxes is to take the net income of the business and add in interest, amortization, depreciation and other non-cash expenses. This is one item away from the formula for EBITDA, which also adds tax back in to arrive at the Earnings Before Interest, Taxes, Depreciation and Amortization.

CFAT is primarily used to gauge a company’s ability to pay a dividend. Cash Flow After Taxes can be used for a debt ratio calculation, where this cash flow is represented over the total amount of debt a business carries, to get an idea of how long it would take the business to pay off the debt if they had to, or just how capable they are of servicing their debt, based on the size of their cash flow.

Some alternative methods of computing debt ratios use EBITDA or Free Cash Flow. Free cash flow is essentially the same as operating cash flow but it reduces the cash flow by the amount of capital expenditures.