Deferred Taxes in Models and Valuations: Interpretation and Projections

[@financialmodeling]

Files & Resources:
youtube-breakingintowallstreet-com.s3.amazonaws.com/105-30-Deferred-Taxes.pdf
youtube-breakingintowallstreet-com.s3.amazonaws.com/105-30-Deferred-Taxes.xlsx
Tutorials Involving Deferred Taxes and NOLs for Uber, Atlassian, Snap, and Others:
Uber Valuation: th-cam.com/video/Cl-Mu-hCKh4/w-d-xo.html
Snap Valuation: th-cam.com/video/wjIW-xZ6c2A/w-d-xo.html
Growth Equity (Atlassian) Case Study (Both SBC and NOLs): th-cam.com/video/NyffcuBn3wA/w-d-xo.html
NOLs on the 3 Statements: th-cam.com/video/p_53cPDNxCQ/w-d-xo.html
NOLs in a DCF: th-cam.com/video/L9bfozDwmtc/w-d-xo.html

[@junsiantan3780]

Very informative video! Thanks so much!

[@financialmodeling]

Thanks for watching!

[@jesusalbertoperezdet3771]

Very clear video, thanks. But what would happen if the Company has no deferred taxes in the CFS (historically) and only presents deferred income taxes in the IS (also historically)? Does this have to do with the fact that the Company has made no profit in the last couple of years? in that case how do you project to arrive at an equity value?

[@financialmodeling]

I would have to see the filings and statements to tell you for sure, but Deferred Income Taxes should always be an adjustment on the CFS (and if they're on the IS for some reason, you should move them to the CFS). If the company has had negative Pre-Tax Income, it should pay 0 in Cash Taxes but could have positive amounts for Book Taxes. So the Deferred Taxes should completely reverse the Book Taxes in this case. In this case, you would probably have to track the company' NOL balance over time and include it in the projections. See the Uber valuation in this channel for an example.

[@jesusalbertoperezdet3771]

sorry i´m confused. in your webpage you mention that a you can also create a Net DTA (DTL-DTA). Does that play when calculating Enterprise Value (subtracting or adding)? also, inside DTA you find NOL, in order not to double count, should I consider Net DTA without NOL, and treat NOL at the end considering it a non-operating asset? thanks

[@financialmodeling]

DTAs and DTLs do not factor into Enterprise Value directly. Only the NOL component of DTAs does. The Net DTA is created as a way to simplify the projections and linking of the statements.

[@jesusalbertoperezdet3771]

@@financialmodeling ok so DTA and DTL are treated as non recurring?

[@financialmodeling]

@@jesusalbertoperezdet3771 You are mixing up different concepts. Balance Sheet line items cannot be "non-recurring," only IS and CFS line items are recurring or non-recurring. The DTA and DTL are treated as core-business assets/liabilities except for the NOL portion of the DTA, so they are not adjusted for in Enterprise Value except for the NOLs.

[@jesusalbertoperezdet3771]

@@financialmodeling mmm, so you just simply ignore the amounts of DTA and DTL in the BS when calculating DCF?

[@financialmodeling]

@@jesusalbertoperezdet3771 In a DCF, all that matters are the company *cash flows* in each period. DTAs and DTLs matter to the extent that they affect cash flows by changing the company's Cash Taxes in each period. But in general, for a quick analysis, the Deferred Tax assumption and line on the CFS is more important than these Balance Sheet line items.

[@akankshaagarwal5306]

where to get these excel files for practice

[@financialmodeling]

See the pinned comment.