- As I understand it, the “income tax expense” is calculated based on the taxable income reported to the IRS and not to the investors and is effected by various factors like tax credits etc. In addition, the company can defer taxes to future periods. Is the remaining “income tax expense” on the income statement the effective cash flow (the taxes paid)? If so, it appears this is the only cash flow item on this report. 2. FCFF/FCFE a. What are the positive cash flows from depreciation ? why is it called an effective cash flow ? b. FCFF=NOI(1-t) – reinvestment needs (where reinvestment needs equals (NET CAPEX-depreciation)-change in noncash working capital). But where is the adjustment to NOI for the transfer from the accrual method to the cash flow method? Thanks in advance ! Guy
Hey, FRA isn’t my best topic, but from what I understand: 1) income tax on the income statement is not a cash-flow item, it can be different to the amount on a company’s tax return due to more aggressive depreciation, etc. ITE is taxes payable to the tax department, adjusted for deferred tax assets or liabilities. 2a not really sure what you mean, but depreciation is a non cash expense that reduces profit. So you add it back on when calculating cashflow. 2b the formula for FCFF in the Elan guides is slightly different from the one you posted - not sure if I’m allowed to post it here due to the copyright rules?
Thanks 1) Yes you are right about IT, but I have asked about ITE. Does ITE represent the effective cash flow (the taxes paid)? 2)a) Yes I know but some present it differently.