Hello all, I’m slightly confussed about what they mean when they say a company has “Little shielded taxable income” this seems to be an incentive to take on more Debt, is that true? Thanks
I think it means that most of it’s income is subject to tax (non-deductible).
Int on debt is tax deductible but dividends on equity aren’t. Therefore increased debt reduces profit by Int x (1-tax rate) not by the Int amount.
Thanks, i understand the principles, however… how would a company with a large tax shield v a small tax shield be affected? When calculating the cost of debt?
I beleive the company has a low amount of interest costs (which is deductible as u know). Therefore little shielded taxable income. Cheers Sumo