I am doing an LBO model based on a 10-K -- My question is generally, what is safe to totally exclude from the model for simplicity's sake?
E.g. if the 10K and historical show DTAs, DTLs, unearned revenue, etc., can I just omit those when modeling? And if so, how do I go about doing that?
Broadly, when trying to simplify a model based on a 10K, should I consolidate these omitted categories into "others" or can I just ignore them entirely? And what other adjustments might I need to make separately?
Depends on situation and time frame. If it's for actual work/deal, then you've got to project those by using appropriate drivers, or flatline / keep as % revenue if no thesis.
If it's for interview process and take home, still worth keeping as % revenue/flat line because these changes in these items affect your cash flow (change in operating asset/liability).
If it's for in person and it's the 1 hr one (not 3 hr one) then you probably won't even see these intricacies. Maybe you will in 3hr one, but in that case just use simple assumptions as above.
Thanks for the response -- when projecting out current DTA/DTLs, can I just assume constant % of sales? What implications would this have on the I/S (if at all)?
My plan was to collapse current DTAs and current DTLs into "current assets / liabilities" in their respective sections, and then project it as a % of revenue moving forward, linking it to NWC, etc., but otherwise not factor in tax deferrals or NOLs or anything. For non-current deferred tax liabilities, I was just going to flatline them and not deal with it. I just want to make sure that's not violating any rules
if these are DTA/DTL they will probably unwind throughout the years. they're called temp differences between gaap and non-gaap so they will impact actual cash flow. DTAs/DTLs aren't supposed to remain on the balance sheet unless company keeps accruing them (NOLs for example for early stage companies will continually accrue into DTAs).
your methods are fine. I've seen stuff just sit flatline or % revenue in the "all other asset/liability" bucket
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