[tjpd]

"Tableau Software tumbled 36% after management warned it was unlikely to realize benefits of certain tax assets. The news sent shares spiralling despite the software company's better-than-expected quarter. The company earned 33 cents a share, more than double estimates."

Also their growth is down.

[jsprogrammer]

What is a tax asset?

[patio11]

Suppose hypothetically that you have an agreement from a firm to pay you money in the future. That agreement is carried on your business' books as an asset.

Your friendly neighborhood tax agency is a special case of firm, which can commit to paying you money in the future. One way they can do this is, when you lose money in year N, they can let you carry that loss forward for up to X years, so that when you're taxed on your income in year N+3 you might be able to offset some of that income with the loss you made years earlier, reducing the amount of tax you incur.

The guesstimated value of that offset in taxes is your tax asset. If your marginal rate is 30%, and you can offset $1 million in revenue, the implied value is +/- $300k. Importantly, if you guesstimate poorly or your friendly local tax agency decides to change rules on you in the interim, you have to adjust the value on your balance sheet. This can be problematic if the tax asset is a material portion of your notional value.

[microtherion]

Thanks for the explanation! I would say that if your PAST LOSSES are a "material portion of your notional value" you have a pretty problematic company anyway.

[patio11]

This would not be uncommon for a high-growth VC-backed company. If you've raised a billion dollars and burned through $800 million you've probably lost a significant fraction of that $800 million. (Some is capitalized but much will be straight-up OPEX loss.)

If you've got, oh, $300 million in cash ($200 million in remaining investment plus we'll say $100 million in collected revenue) and another $25 million in accounts receivable then the tax asset is worth about, round numbers, $250 million, or 43% of the book value of the company.

Having to write down 43% of your book value would suck.

This is, again, not outlandish for a company on that trajectory. If the revenue is growing rapidly and forecast to continue growing rapidly the company is in a wonderful spot.

[femto113]

Usually it was a loss in an earlier period that you've rolled forward to offset profits in a later period. They can expire though, so if you don't make a profit in time they become worthless. Companies carry them as an asset on their books until one or the other happens.

[cavilatrest]

To add-on to previous commenters, they're usually the result of discrepancies between how taxes are actually charged, and how they're calculated for financial statement purposes.

For example, companies will calculate depreciation on their capital assets using various methods. However the IRS/CRA have their own methods for calculating depreciation on these assets. The difference between these two amounts can create a deferred income tax liability or asset. That is, if you record depreciation higher than what the IRS calculates as, the income tax expense you record on your income statement will be higher than the amount you are actually charged.

There are also rules which identify whether or not companies can put a deferred tax asset on their balance sheet. Under International Accounting Standards (IFRS), companies must establish that they can realize these assets by having sufficient income to apply them against in the future. In the U.S., as was the case here, a valuation allowance was applied to decrease the asset as they indicated that they weren't likely going to have a sufficient net income in future periods to apply that asset to tax expenses.

Anyways I'm a bit rough on it as while I've got an education in accounting it's not my day-to-day job anymore. Additionally I'm not that familiar with U.S. accounting standards

[ohyes]

It's basically when you can claim that you operated at a loss in a given year and for tax purposes carry over that loss to a different year. This lets you pay less taxes in a year when you actually make profits.

I am not an accountant, here's a likely better explanation: http://www.investopedia.com/terms/d/deferredtaxasset.asp