Image of man at computer researching taxes and operating cash flow
A:

Yes, taxes are included in the calculations for the operating cash flow. Cash flow from operating activities is calculated by adding depreciation to the earnings before income and taxes, and then subtracting the taxes. The operating cash flow indicates the cash a company brings in from ongoing, regular business activities. The operating cash flow can be found on a company's cash flow statement in the financial reporting done annually and quarterly.

The operating cash flow is important when considering whether the company can generate enough positive funds to maintain and grow its operations. If not, the company may require external financing. Shorter turnover rates in inventory and shorter times for receiving funds increase the operational cash flow. Items such as depreciation and taxes are included to adjust the net income, rendering a more accurate financial pictures. Higher taxes and lower depreciation methods adversely impact the operational cash flow.

Investors find it important to look at the cash flow after taxes, which indicates a corporation's ability to pay dividends. The higher the cash flow, the better the company is financially and the better positioned it is to make distributions. Income the company has from outside of its operations is not included in the operational cash flow. Any dividends paid and infrequent long-term expenses are often excluded from this calculation as well.

One-time asset sales are also noted, as they inflate the cash flow numbers during the relevant time period. Investors look at the balance and income statements to gain better knowledge of the overall health of a company.

RELATED FAQS
  1. How are cash flow and free cash flow different?

    Both cash flow and free cash flow are financial metrics that measure a company's liquidity, but one shows how effectively ... Read Answer >>
  2. How should I evaluate a company with negative cash flow investing activities?

    Negative cash flow from investing activities should be evaluated since it could be a warning sign. However, it can also mean ... Read Answer >>
  3. What is the difference between operating cash flow and net income?

    Learn how net income is an income statement for a certain period of time, while cash flow shows inflows and outflows based ... Read Answer >>
  4. What's the formula for calculating free cash flow?

    Free cash flow is the cash left over after a company pays for its operating expenses and capital expenditures. High free ... Read Answer >>
  5. What factors decrease cash flow from operating activities?

    Understand the types of factors that reduce cash flow from operation activities. Discover how declining net income and efficiency ... Read Answer >>
  6. How does depreciation affect cash flow?

    Depreciation is a non-cash accounting charge doesn't directly affect cash flow, but there are certain tax situations whereby ... Read Answer >>
Related Articles
  1. Investing

    Evaluating A Statement Of Cash Flows

    The metrics for the Statement of Cash Flows is best viewed over time.
  2. Investing

    Fundamental Case Study: Is Amazon's Cash Flow Actually Solid? (AMZN)

    Review Amazon's cash flow situation, including its free cash flow yield, operating cash flow from organic growth and cash flow from debt financing.
  3. Investing

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.
  4. Investing

    The Importance of Properly Managing Your Cash Flow

    The more cash you have, the more cash flow you can create which builds wealth.
  5. Investing

    Cash flow statement: Analyzing cash flow from investing activities

    Here, you'll find an overview of cash flow from investing activities — one of three primary categories in the statement of cash flows.
  6. Investing

    Why Goldman Is Warning About Free Cash Flow Yield (GS)

    Learn why Goldman Sachs is alerting investors to the importance of cash flow, and discover a recommended alternative equity valuation metric to free cash flow.
  7. Personal Finance

    10 Ways to Improve Cash Flow in Construction

    Improving cash flow in construction requires some sector-specific strategies.
  8. Investing

    5 Companies With Huge Cash Flow (AAPL,VZ,MSFT,WMT)

    These five companies have major cash flow which makes them good long-term bets.
  9. Small Business

    Top 10 Ways to Improve Your Business's Cash Flow

    Improving cash flow from receivables provides more capital for day-to-day operations and innovation. Here are 10 ways to do it.
RELATED TERMS
  1. Operating Cash Flow Margin

    Operating cash flow margin measures cash from operating activities as ...
  2. Cash Flow Per Share

    Cash flow per share is a measure of a firm's financial strength, ...
  3. Cash Flow From Investing Activities

    Cash flow from investing activities reports the total change ...
  4. Free Cash Flow Per Share

    On a per share basis, free cash flow per share is cash available ...
  5. Unconventional Cash Flow

    An unconventional cash flow is a series of inward and outward ...
  6. Cash Flow-to-Debt Ratio

    The cash flow-to-debt ratio is a measure that compares a company’s ...
Trading Center