Question on NOLs in DCF
I've been confused by this for a little and would appreciate any help.
So when performing a DCF on a company, I've read that one way to calculate Unlevered FCF is by adding back Non-cash expenses, like NOLs, to NOPAT. Another thing I've read is that when we move from enterprise value to equity value, we add back NOLs.
My question is: if we factor in NOLs into our FCF calculation, should we not add back NOLs when we move from EV to equity value due to the fact that we don't want to double count? Thanks.
Also, what method of explaining NOLs in an interview would make the most sense (factoring in NOLs into FCF or adding back NOLs when moving from EV to Equity Value)
I think it’s easier to run the DCF on a fully taxed basis and then you run the NOL schedule separately to calculate the present value of the tax savings which is the additional value
alternatively, If you’re discounting cash flows that already capture the NOLs (I.e. the tax savings) then you wouldn’t add anything incremental because the value is already reflected in PV of the cash flows
This - you always run the NOL separately to get the PV of your tax savings assuming the NOL isn't captured in your cash flows.
Pm me
Have to create a tax schedule
EBT (Pre-NOL)
Total NOL Balance
Recognizable NOL for that year (usually 3% x TEV)
Ending NOL Balance
EBT (Post-NOL) (basically just EBT pre NOL - recognizable NOLs for that year)
NOL affected taxes (the lower EBT x tax rate)
The way I've seen it done is excluding the positive future NOL cashflows from your UFCF / DCF calculations entirely. Then the NOL future CF are generally valued separately at a different discount rate (I'm blanking on whether it's materially higher or lower than your WACC - fuck taxes, I hate them lol)
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