Additive method (fastest, from net income):
Net income for the period + Depreciation, amortisation and provisions − Reversals of depreciation, amortisation and provisions + Net book value of disposed assets − Proceeds from asset disposals = CAF
Subtractive method (from EBITDA – shows where the resource comes from):
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) + Other cash receipts (excluding disposals) − Other cash payments ± Cash financial income/expense ± Exceptional income/expense (excluding disposals) − Corporate tax = CAF
SME example: net income €60k, depreciation €45k, reversals €5k, no disposals → CAF = 60 + 45 − 5 = €100k. The business generates €100k in internal resources per year: enough to cover, for example, €60k in loan repayments and €40k in self-financed investments.
Why add back depreciation? Because it reduces net income WITHOUT cash outflow: it is a "non-cash" expense. CAF reinstates it to reflect the actual resource generated. The downside: a comfortable CAF can coexist with depleted cash if working capital consumes the resource – CAF is a POTENTIAL cash flow, working capital determines what remains.
1. Size a loan BEFORE applying. A banker’s question isn’t “Is your project good?” but “Does your CAF cover the repayments, with room to spare?” A CAF of €100k with existing repayments of €30k leaves ~€40k for new repayments (70% rule) — at 5% over 7 years, that’s a loan of roughly €230k. Doing this math before the meeting changes the conversation entirely.
2. Balance dividends vs investment. CAF is the total pool: what goes to dividends won’t fund growth or debt reduction. Net self-financing (CAF − dividends) is, in fact, the metric credit analysts track.
3. Spot deterioration before it shows. A CAF that shrinks while revenue grows signals a deeper issue (eroding margins, runaway overheads) masked by growth. It’s an excellent quarterly reporting indicator — far more telling than net income alone, precisely because it neutralises depreciation and provisioning games.
CAF, EBITDA, cash flow: which to trust? All three tell the same story from different floors: EBITDA measures gross operational profitability, CAF measures internal resources after finance and tax, cash flow measures actual cash received after working capital. A full analysis reads them together: strong EBITDA + solid CAF + negative cash flow = working capital eating everything (poorly funded growth). Weak EBITDA + CAF saved by one-offs = an engine stalling.
Discover the Orizen answer: Orizen financial management, modular and built for French SMEs.
Essai gratuit 14 jours What the Orizen financial management module costsCAF is a POTENTIAL flow calculated from the income statement: it assumes all revenue is collected and all expenses are paid. Cash flow (operating cash flow) is the ACTUAL flow: it includes changes in working capital — customers paying at 60 days, inventory piling up. Conversion formula: Operating cash flow = CAF − change in working capital. A fast-growing SME might have €100k in CAF but only €20k in actual cash flow: the missing €80k is tied up in receivables.
Two perspectives: in absolute terms, a CAF ≥ 5-10% of revenue is healthy for a typical SME (services and light industry); in coverage terms, a financial debt/CAF ratio under 3 years is comfortable, 3-4 is acceptable, above 4-5 means borrowing capacity is maxed out in lenders’ eyes. But the most important factor is the TREND over 3 years: a stable or growing CAF reassures more than a single good year — banks think in three-year averages, just like for EBITDA in valuations.
Both, depending on the culture: traditional French banks historically use CAF (and repayment/CAF ratios), while structured finance and funds use EBITDA (and net debt/EBITDA leverage). The figures are close but not identical — EBITDA ignores financial results and tax, which CAF includes. For an SME credit application, present both: the CAF table for the account manager, the EBITDA leverage for the committee. Speaking each party’s language speeds up approvals.