Net Operating Losses (NOL)

Net operating losses (“NOL”) are generated when taxable income is negative, and may be used to offset positive taxable income, thereby reducing taxes payable. If you haven’t done so, you may want to review our primer on NOL before proceeding with this step.


Create Financial Models 10x Faster with Macabacus

Gain access to 100+ shortcuts, formula auditing visualizations, easy Excel-to-PowerPoint linking and productivity tools to help you accelerate financial modeling and presentations.

Start your Free Trial

NOL may be carried forward for use in future periods up to 20 years from the period in which they are generated. However, companies rarely disclose the remaining life of NOL and, without the benefit of further diligence, we assume in our model that the remaining NOL life is 15 years (implying that all of the NOL was generated five years ago). The MRY NOL balance would be sourced from a 10-K, annual report, or other regulatory filings.

The DTA attributable to NOL is computed here only to highlight the relationship between such DTA and the NOL, but does not flow elsewhere in our operating model. Note that we have computed the DTA attributable to NOL as the NOL balance multiplied by the tax rate. Depending on disclosure, you can alternatively compute the NOL balance as the DTA attributable to NOL divided by the tax rate. DTA attributable to NOL is often reported in annual reports and 10-K filings, but is less frequently disclosed in quarterly 10-Q filings. Actual NOL balances may not be disclosed at all.

Note that our MRY DTA attributable to NOL is computed using the assumed tax rate in the first projected period, rather than the MRY tax rate. This ensures that the DTA attributable to NOL goes to zero when the NOL has been fully utilized. Try modifying this formula to instead link to the MRY tax rate and observe that the DTA attributable to NOL does not go to zero in the first projected period.

Discover more topics

Build an operating model
In this tutorial, we will walk through how to build a general industry business operating model.
Read more
Build an M&A model
In this section, we demonstrate how to model a merger of two public companies in Excel.
Read more
Build an LBO model
In this tutorial, we will walk you through building an LBO model in Excel.
Read more
Asset and Stock Deals
The first step in purchase price allocation, or PPA, is to determine the purchase price.
Read more