Rick Warner (Edward G. Detwiler & Assoc.) started a discussion in LinkedIn’s Business Valuation Professionals group last week that generated diverse feedback. He asked:
How are folks handling the existence of NOL carryforwards, when the company being valued is expecting to have positive earnings in the future? Standard of value is FMV. If you assume a hypothetical transaction, it is less likely that such NOLs would ever get used given the limitations on the ability to transfer them. Clearly however, these NOLs will have value to the current company if indeed earnings turn positive.
Mark Krickovich (MK Appraisal Group)said “oneapproach would be to utilize an NOL table for the subject company, where the NOL balance is used-up during future positive earnings periods - however, this perhaps ignores the hypothetical transaction notion in favor of the ‘value as a going-concern’ premise.”
John O’Brien (Business Valuation & Consulting Group) responded “there is definitely value there. We reduce the taxes during the projection period for the NOL's. If there are still remaining NOL's at that point, we do not include the NOL as part of the TV calc."
Don May (Marks Paneth & Shron) said “my understanding is that the NOLs can not be used to offset the acquirer’s net income but can be carried forward for the subsidiary. Hence the NOLs should always be valued in calculating the FMV. All respondents agreed that the NOL should be a part of the valuation."
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