Tax
Tax on profit, and tax on operating profit.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: tax.Updated 30 September 2026
What it does
In an operating model, tax is a rate applied to profit before tax. In an unlevered valuation it is applied to EBIT, because the cash flow being valued belongs to debt and equity together. The simple treatment floors tax at zero in a loss year; a fuller model carries a loss forward and offsets it, which is a schedule of its own.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, row 13: Tax rate on operating profit
- Forecast, row 11: Tax on EBIT
- Assumptions, row 40: Tax rate
- Operating Model, row 16: Tax
- Assumptions, row 12: Marginal tax rate
- Pro Forma EPS, row 17: Tax on adjustments
What a reviewer looks for
- Applying tax to EBITDA.
- Letting a loss year produce a negative tax charge in a model with no loss carry-forward.
- A statutory rate where the case calls for an effective one.
Learn it, then build it
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Vocabulary: EBITDA.