Colin Barry

Citigroup and Mike Mayo (BAV, Monday, Week 3)


The "taxes" line on a firm's income statement is NOT the cash amount of taxes paid.

Big differences:
-- Treatment of depreciation/amortization (IRS: accelerated depreciation; GAAP: straight-line or something else)
-- NOL (net operating loss) carrybacks
-- Loan losses (for financial institutions), bad debt, etc.

Gives rise to Deferred Tax Assets (DTAs) and Deferred Tax Liabilities (DTLs).
-- DTAs = interest-free loan to the government => firm paid more in taxes in the past than I/S reflects
-- DTLs = interest-free loan from the government => firm paid less than I/S reflects; will owe more in the future

DTAs are a huge deal, especially in financial services and capital-intensive industries.
$1.7B in DTAs in US in 2010; $2.3B in DTLs.