Definition:

Cash Taxes Paid refers to the actual amount of cash a company pays to tax authorities during a specific period. It represents the outflow of cash related to income taxes, excluding any deferred tax liabilities or assets.

Formula:

Cash Taxes Paid = Income Taxes Payable at Beginning of Period + Income Tax Expense - Income Taxes Payable at End of Period

How to use the metric:

Cash Taxes Paid is used to assess a company's cash flow related to tax obligations. It helps investors and analysts understand the actual cash burden of taxes on a company's operations, which can impact liquidity and financial planning.

Limitations:

Cash Taxes Paid does not account for deferred taxes, which can be significant in some industries. It may not reflect the total tax expense recognized in the income statement, leading to discrepancies in financial analysis. Additionally, it can be influenced by timing differences in tax payments.

Applies to:

Cash Taxes Paid is applicable across most industries, particularly those with significant cash flow considerations, such as manufacturing, retail, and services, where understanding cash management is crucial.

Doesn't apply to:

Industries with complex tax structures, such as multinational corporations with significant deferred tax components, may find this metric less useful. It may not fully capture the tax strategy or obligations of companies in sectors like technology or pharmaceuticals, where deferred taxes play a larger role.

Summary:

Cash Taxes Paid is a critical metric for understanding the actual cash outflow related to taxes, providing insights into a company's liquidity and cash management. However, it has limitations due to its exclusion of deferred taxes and potential timing differences, making it less applicable in industries with complex tax structures.