[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.