Module VI· Three-Statement Model MechanicsIntermediate
Question
How do you model taxes in the income statement forecast?
Answer
Use pre-tax income multiplied by an effective tax rate for a simple model. For more detail, separate cash taxes and book taxes, NOL usage, deferred taxes, non-deductible expenses, and jurisdictional mix. Ensure taxes do not become negative without logic. In valuation models, cash taxes matter more than accounting tax expense.