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Why is before tax cash flow (BTCF) a better measure of investor cash flow than net...

Why is before tax cash flow (BTCF) a better measure of investor cash flow than net operating income (NOI)?

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Answer #1

Before tax cash flow(BTCF) indicates the amount of money generated by the firm which is obtained after factoring in the various items like revenues and costs,except the tax payment.The earnings before tax(EBT) less the tax expenses would give the after tax cash flow.(Net Operating income or NOI)

When it comes to net income or after tax cash flows the investor is not able to receive the whole amount.This is because of the interest payments that would have to be made from that amount and also tax deductions are applicable,but in the case of before tax cash flows the interest payment is already factored in and the tax deduction is not deducted,thereby making it a better measure from investor standpoint..Hence the before tax cash flows(BTCF) are regarded as a better measure of cash generate by the firm for the investor than the net operating income(NOI).

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