Module I· Deferred Taxes (DTA/DTL)Intermediate
Question
How do you treat Δ DTL in the OCF reconciliation?
Answer
Logic
The income-statement tax is the sum of the current tax and the change in deferred tax. The actual cash tax is only the current tax — the change in deferred tax is non-cash and must be neutralized in the OCF reconciliation.
Sign table
| Movement | Meaning | OCF effect |
|---|---|---|
| DTL rises by X | deferred tax liability built up; income-statement tax > cash tax | +X (add-back) |
| DTL falls by X | DTL reversal | −X |
| DTA rises by X | deferred tax asset built up; income-statement tax < cash tax | −X |
| DTA falls by X | DTA realization or impairment | +X (add-back) |
In practice
Standard models often show 'Δ deferred taxes' as a single line — cash taxes typically differ from income-statement taxes by 0–5%.
Deep diveShow more details
Pitch tip
In a DCF of a capex-intensive target, set the long-term cash-tax rate below the income-statement tax rate — a 1–3 percentage-point difference is possible, moving FCF by 2–5%.