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Ubiquiti Networks, Inc. (UBNT) Message Board

attempt37 6 posts  |  Last Activity: Feb 24, 2014 5:46 PM Member since: Sep 27, 2013
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  • attempt37 attempt37 Feb 24, 2014 5:46 PM Flag

    I think I'm right, but I can't nail it. I found a quote, but it's from 2011 and about the effect of reducing the maximum U.S. tax rate, not the normal use of NOLs:

    "A reduction in the deferred tax assets (DTAs) requires an immediate charge to current period accounting earnings (by increasing tax expense), ..."

    That's from "Corporate Tax Reform, Deferred Taxes, and the Immediate Effect on Book Profits" by Raedy, Seidman, and Shackelford, 2011.

    It's possible there's a difference when the tax assets are utilized instead of revalued down due to a lower tax rate, but I doubt it. A charge would cancel the benefit from "Utilization of NOL carryforwards", but only for net income.

    I'd say the shares are probably undervalued, and my 'wait and see' approach could be proved wrong.

  • I believe FHCO's Net income has already seen most of the benefit of its Net Operating Loss (NOL) carryforwards, and the future benefit is probably limited by the deferred income tax valuation allowance, which is now under $3 million. By 'probably', I mean it's possible for the valuation allowance to go back up, but that would hit Net income through extra tax expense. The total effect of Net Operating Losses on Net income has been big, especially for 2013. By 'total effect ' I mean Utilization of NOL carryforwards, plus the benefit booked as "Decrease in valuation allowance", which is actually a transfer from the valuation allowance to Net deferred tax assets. The cash benefit will last until the Net deferred tax assets run out. It's possible for the effective tax rate to be higher than the cash tax rate, and not just from delays in paying cash. Orbital Sciences are an example where Utilization of NOL carryforwards mean the cash tax rate is under half the effective tax rate which stays high. I've raised the issue in comments on Seeking Alpha under the alias "fnoobler", but interperiod tax accounting is complicated and I don't think my explanations were simple enough. I'm long FHCO but I don't intend to buy more until I believe there's more clarity about tax, and I want to know that investors aren't going to be surprised soon when the income statement reflects normal tax rates. I'm not a tax expert and I'm not 100% certain about the future effect on net income, but I'm more sure since I found Orbital Sciences, although they don't make the situation completely clear.

  • Reply to

    In a long blog about 3 companies. Search for -

    by attempt37 Jan 23, 2014 7:26 AM
    attempt37 attempt37 Jan 24, 2014 5:29 AM Flag

    I'm sinksmith, and invested in RGEN. I'm glad you found the blog informative, I thought it might be too unorthodox for a lot of investors.

  • "Three cash3 companies" sinksmith

  • "Three cash3 companies" sinksmith

  • "Three cash3 companies" sinksmith

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