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How do you factor net operating losses (NOLs) in valuation?

Full Question: How do you factor net operating losses (NOLs) in valuation? I try to determine the NOL present value and add it to the enterprise value. This approach is very speculative, so I try to exclude NOLs from my valuation analysis unless I feel fairly confident the company/acquiror could us... Read More

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by Guest 1.

added 11 years ago

RE: How do you factor net operating losses (NOLs) in valuation?

NOLs are trickier - they are not typically factored directly as an asset with value in the sense of equity, debt and enterprise value, but rather, decreases the cash taxes paid, increasing free cash flow and thereby increasing overall value. Of course, NOLs can be valued separately by modeling out f... Read More

by WST Expert 1.

added 11 years ago

RE: How do you factor net operating losses (NOLs) in valuation?

The way we would account for NOLs in a DCF analysis is to reduce the "cash taxes" paid, thereby increasing Free Cash Flow to Firm and thus, increasing the PV of FCFF in the 4-5 year projection period. If there are significant NOLs still remaining after that, we would treat the PV of the tax shields ... Read More

by WST Expert 1.

added 11 years ago

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