Three statements Updated November 2026

Tax schedule with NOLs

Tax expense = MAX(0, pre-tax income - NOL used) x tax rate, where NOL used = MIN(opening NOL balance, MAX(0, pre-tax income)). Losses add to the NOL balance, and the balance shrinks as profits use it. This keeps tax at zero in loss years and reduces tax when a company returns to profit.

Syntax

NOL used = MIN(Opening NOL, MAX(0, EBT));  Tax = MAX(0, EBT - NOL used) x rate;  Closing NOL = Opening NOL + MAX(0, -EBT) - NOL used

Part	What it is
`EBT`	Pre-tax income (earnings before tax)
`Opening NOL`	Unused tax losses carried in from prior years
`rate`	Statutory or effective tax rate

Examples

Year 1: EBT -100, opening NOL 0, rate 25%
NOL used = MIN(0, MAX(0,-100)) = 0; Tax = MAX(0,-100-0)*25%

Result: Tax 0, closing NOL 100

Year 2: EBT 150, opening NOL 100
NOL used = MIN(100, 150) = 100; Tax = (150 - 100) * 25%

Result: Tax 12.5, closing NOL 0

Year 3: EBT 80, opening NOL 0
=MAX(0, 80 - 0) * 25%

Result: Tax 20

Common mistakes

Negative tax in loss years (a refund): multiply by MAX(0, EBT) unless carrybacks are actually available.
Using more NOL than the balance or more than the year's profit; the MIN of the two caps it.
Ignoring limits: in the US, post-2017 NOLs can offset only 80% of taxable income in a year, and some countries cap the carryforward period.

Practice Tax schedule with NOLs

These drills check your answer on live data, free, no account needed.

Tax only when there is a profitFill tax expense in row 6 at the rate in B2. In a loss year the tax is zero, not a negative number. Use MAX.
Tax losses carried forwardLosses can be carried forward to shelter later profits. Fill the schedule: losses available at the start of each later year (row 7), losses used (row 8: the smaller of what is available and this year's profit, never below zero), losses available at the end (row 9: start less used plus any new loss), taxable income (row 10) and tax (row 11).
From EBITDA to net incomeComplete the bottom of the income statement: EBIT (row 7), earnings before tax (row 9), tax at the rate in B2 with no tax in a loss year (row 10) and net income (row 11).

Questions

What is an NOL carryforward?

A net operating loss from a past year that can be deducted against future taxable income, lowering cash taxes until it is used up or expires.

How do NOLs show up in a DCF?

As lower cash taxes in the forecast years, which raises UFCF. Some analysts value the NOL separately as the PV of the tax savings and add it to enterprise value.

EBITDA to net incomeNet income = EBITDA - D&A - interest - taxes. Each step of the bridge (EBIT, EBT, tax at the rate, net income) with exact numbers and the tax-on-losses rule.
Unlevered free cash flowUnlevered free cash flow = EBIT x (1 - tax rate) + D&A - capex - increase in net working capital. Examples from EBIT and from EBITDA, plus the sign rules.
Three-statement modelHow a three-statement model links net income, depreciation, capex, working capital, debt and cash so the balance sheet balances. Build order, links, check.
Cash flow from operationsCFO = net income + D&A + other non-cash charges - increase in working capital. How the indirect method works line by line, a worked example and sign errors.