Cash Tax Paid is an estimate of the tax amount actually paid in a given period. Because Fathom does not receive individual transactions from the source accounting system, we calculate the Cash Tax Paid to know how much actual cash went toward tax payments in a given period.
As part of the formula, Fathom uses the Tax Rate set for the company in ‘Step 2’ of the company’s Settings.
Cash Tax Paid =
+Opening Tax Liability
-Closing Tax Liability
+Opening Deferred Tax
-Closing Deferred Tax
+(Net Int x (Tax Rate/100))
The last part of this formula may be slightly unintuitive. The important thing to remember is that Free Cash Flow is always a measure of how much cash is available to the providers of capital (debt holders and shareholders), after all taxes and needs for reinvestment have been met.
In other words, Free Cash Flow is always after tax. This is why we include the line tracking ‘Net Interest (after tax)’ in the Free Cash Flow section of the Cash Flow tool.
Net Interest (after tax) =
Interest Expense - Interest Income - (Net Interest * (Tax Rate/100))
Cash tax paid (at the Operating Cash Flow level) is then adjusted to reflect the tax shield provided by the Net Interest.