Currently working on a DCF problem and trying to build out a free cash flow table but getting confused about deferred tax assets. As I know it, FCF= EBIT(1-tax rate) + depreciation & amortization - change in working capital -CapEx. What if a company has deferred tax assets? Does it impact FCF at all?
Appreciate any help!
Only a monkey: I'd say DTA and DTL adjust net income so would ultimately affect FCF, could be wrong.
DTAs are assets. Run your income statement as usual; net income is unchanged. Go to cash flow and under CFO consider how much DTA you utilize. Then adjust cash flow upwards and reduce DTA asset value (the reduction in DTA will be a source of cash).
FCF = EBIT(1-t) + DA - Capex - Increase in Operating NWC + Decrease in DTA
Treatment of DTA/Ls are identical to treatment of other current assets and liabilities.
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