Self-Financing Capacity (CAF) Calculator
Written by Thierno Sadou Diallo, formula verified per our methodology • Last checked on 10/11/2026
Self-financing capacity is calculated with net income + depreciation and provision charges − reversals. For €100,000 net income, €35,000 of charges, and €5,000 of reversals, the capacity is €130,000.
Explanation
Self-financing capacity measures the cash resources actually generated by a company's activity over a period, as opposed to accounting net income, which includes charges and income that involved no real cash movement. Depreciation and provision charges are the most common example: they reduce accounting net income (a machine losing value each year, for example) without corresponding to a cash outflow in the period concerned, since the money was already spent at the time of the initial purchase. Conversely, reversals of depreciation and provisions increase net income without corresponding to a real cash inflow, and must therefore be subtracted to get back to the actual cash resource. This is why a company can show a healthy positive self-financing capacity despite negative net income (an accounting loss), if its depreciation charges are high enough: the capacity then better reflects its real ability to finance investments, repay loans, or pay dividends, without resorting to outside financing. This simplified formula suits a company with no significant asset disposals in the period; fuller versions also neutralize the effect of asset disposals (machinery, vehicles, buildings sold), which aren't part of ordinary operating activity. The resulting capacity is then often used as a reference to assess the ability to repay a new loan, see our debt coverage ratio calculator.
Example: €100,000 net income, €35,000 charges, €5,000 reversals
Inputs
Net income: €100,000. Depreciation and provision charges: €35,000. Reversals: €5,000.
Calculation
Capacity = 100,000 + 35,000 − 5,000 = €130,000.
Result
This company generates a self-financing capacity of €130,000 over the period.
Frequently asked questions
Why add back depreciation charges instead of ignoring them?
Because they already reduced accounting net income without corresponding to a real cash outflow in the current period: the money for the depreciated equipment was spent at the time of purchase, not year after year as it's depreciated on the books. Adding them back to net income lets you recover the cash actually generated by the business, rather than the accounting result, which follows rules for spreading costs over time.
Is this capacity the same as the company's available cash?
No, these are two different concepts: this capacity is a potential resource generated by the business over the period, while available cash also depends on actual cash outflows and inflows (loan repayments, investments, changes in working capital requirement). A company can have a high capacity but tight cash flow if it also needs to finance a fast-growing working capital requirement — see our working capital requirement calculator for that second aspect.
What is this capacity actually used for in a business?
It serves as a reference for assessing a company's ability to finance future investments without outside funding, repay existing loans, or pay dividends to shareholders. Banks and investors also frequently use it to assess a company's financial strength before granting new financing, often relative to existing debt.