Was wondering if anyone had insight on this technical.
Company X has 10 NOLs on the BS at a 20% tax rate at Y1. At Y2, the company has 20 PTI and decides to use the NOLs. What is the impact on the 3FS?
My gut reaction is that their PTI falls by 10 so their taxes are only 2 and their NI is 8. But that would also mean that they "lost" PTI when in reality it should impact their taxes only. As a result, I was wondering how I could go about solving this.
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Was on a deal with big NOL balances recently - for the purposes of modeling, we added in a tax shield line item so you’d have
Pretax income: 20
(-) NOL Shield: 10
= Taxable income: 10
(Taxes @ 20%): 2
Post-Tax income + NOL Shield: 18
Make sure to show the decrease in NOL on BS
Also make sure you’re taking into account whether NOLs are subject to Section 382 limitations I.e. were the NOL’s acquired through a change in control transaction - those have more limitations
Awesome, thank you.
On the CFs, would you add $10 due to the DTA falling by $10 in NWC? And then subtract out the 10 DTA on the assets side?
That makes it link well together but wanted to ask if that's the right intuition
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