OCF Formula

In Finance, Capital Budgeting is the process of allocating resources for major capital, or investment, expenditures. Given here is a tax shield approach formula for estimating the operating cash flow. A tax shield is a reduction in taxable income for an organization achieved through claiming allowable deductions such as mortgage interest, medical expenses, charitable donations, amortization, and depreciation. Use OCF formula to find the overall amount of taxes owed by a business.

Tax Shield Approach Formula


Operating Cash Flow = ( Sales - Costs) × ( 1 -Tax Rate/100 ) + ( Depreciation × Tax Rate/100)

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Capital budgeting becomes vital for any business as it involves a large sum of money is which influences the profitability of the firm. Calculate capital budgeting from OCF using tax shield approach formula.

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