How do you treat net operating loss carryforwards (NOLs) in a DCF?

NOLs reduce future cash taxes. Two methods:

• In the FCF: set a lower cash tax rate until the NOLs are used up, then the long-run rate.
• Separate NOL value: loss carryforward × tax rate × discount factor → add to EV. Method (2) is cleaner, because NOLs are an 'asset'. Watch out: minimum-taxation rules (many jurisdictions let carryforwards offset only part of the annual profit above a de-minimis threshold, capping the shelter) and change-of-ownership rules (loss forfeiture when >50% of the shares change hands) — in LBOs/M&A often a complete loss of the NOLs. In a PE context, check loss carryforwards before structuring the LBO — it can tip the valuation.