Trying to figure out how to value NOLs that exist on the company's statements currently. Do I add (NOL * Tax rate) when adding to EV derived from DCF? or am I misunderstanding how to deal with NOLs?
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NOLs are subject to Section 362 usage limitations which will greatly limit their present value. In theory, you could model out the future tax savings from the annual NOL applied, and discount that value back to present. In reality, buyers rarely offer additional considering for NOLs.
When going from EV to EqV, you should add the value registered related to NOLs under Deferred Tax Asset.
I get that - but do I just add the total sum of NOL or do I just add (NOL * tax rate), so we are just giving it the benefit of the taxes saved assuming current NOLs offset future operating income?
The value that must be registered under DTA is (NOL * tax rate) - therefore, this is the value that must be added to EV. The off the books NOL schedule is constructed to arrive at the DTA creation/usage numbers, but those do not actually appear on the Balance Sheets.
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