Now we're going to do the income statement.

The income statement itself is very straightforward.

It's earnings, depreciation, interest and tax.

There are several complications.

We can't do interest yet because we haven't got it.

We haven't got it because we haven't done debt yet, so we'll skip this.

The other complication is that tax is complex and that's because we're trying to show some of the complications that project finance and renewable projects might meet.

There are two issues. Thin cap, which prevents projects and companies incidentally from charging what's deemed to be too much interest and NOLs, which allow projects and companies to carry forward losses to be set against future profits.

We're also trying to model some timing.

So we've got a 50 50 split between paying this year and next year and that's gonna create a tax payable.

The first step is to fetch some of the items to build the basic income statement.

EBITDA will grab from the bottom of the operations.

Depreciation we calculated in sources and uses when we did CapEx and that should be a negative so we can leave the sign the way it is.

We've then got profit before tax, just make sure that sum is working properly.

We'll now pull that to the right so we don't forget.

You can see we've got a loss here and we haven't got any interest yet because we're going to fetch that once we've done debt and that loss we're gonna deal with next by having a look at net operating losses.

Now, net operating losses are based on profit before tax, so let's go and fetch the profit before tax from earlier.

There is a risk that those losses end up double counting interest.

If we take a look at it, you can see that the interest expense might cause profit for tax or a taxable loss.

However, as part of our thin capitalization, we could end up disallowing or actually creating notional interest in the year.

And so when we're doing NOLs, we do need a thin cap adjustment.

So we need to adjust the taxable profits by the results of thin cap.

The two rules interact, which is quite complex, we can't do that yet, but we should let it filter into our sum here.

That brings us to the start of our NOLs.

We've got a hard coded zero because this project is just starting up.

Say we were buying a renewables company or asset, you may find that we had NOLs in the NOL account already from previously loss making years.

As it is, we start with zero and now we just need to do some very careful mins and maxs.

What we want here is we want the min of that and zero and then given that, that will try and grab a negative figure and we are trying to create a NOL account where the net operating losses are building up.

If there are losses, we'll need to flip the sign on that.

Let's make sure that works.

So we'll get the subtotal going, pull to the right.

That seems to be working just fine in that it's only pulling losses and ignoring any taxable profits and the account is working nicely in that it's creating a base account there.

Now, as I said in the intro, if NOLs are very important to your project, you should really take some tax advice before making a model like this.

NOL carry forwards and carry backs are quite complex and governed by complex rules.

This model is simplified in that there are no limits on how much NOL you can use.

There are no limits on the carry forward and there's no attempt to do any carry back.

And depending on where you are in the world and when you watch this video, those rules may actually be quite different.

So again, if this were significant for your project, I would urge you take some tax advice before starting to build.

And the overall objective of this line is when we have a profit such as in this year, we want to set the previously put away losses against that profit.

The complication is that we need to grab only a profit, which is one bit of logic, but we also need the account not to go through the floor.

We need two bits of logic in here, which is quite awkward.

It's getting towards the limit of what you can do in one line.

The first thing we need to do is only really look at this line if it's above zero, and if it is above zero, then what we'll do is we'll grab the minimum of that line and what's in the account.

Then if we are charging previously put away losses, we need those to be negative as in we are emptying our NOL account and we need a fail state for the if and that'll just be a zero.

That's quite complex, so we should probably do a bit of stress checking there.

It seems to be working, but I just want to make sure that works and so I'm going to hard code some stuff over here and say, okay, what if I make a subsequent loss? Yep, it's filling up the account and then subsequently it's being used again.

I'm satisfied with how that's working.

I'll just remember to unwind my stress check, which is a source of constant error if you don't forget or if you forget to do that, we've now got a properly working NOL account and we're ready to put it together our taxable profits.