aswathdamodaran.blogspot.com · 2019-02-05
· 2676d
Debt, Neither Poison Nor Nectar: A Data-Driven Analysis of Financial Leverage Across Industries and Regions
This article examines how debt functions as a capital source, analyzing the trade-offs between tax benefits and default risk across industries and regions globally. The author argues that debt is neither inherently good nor bad, but rather should be calibrated based on earnings stability, tax rates, and business model characteristics, while also advocating for capitalizing operating leases as debt equivalents in financial analysis.
Metrics in this report
Federal Corporate Tax Rate (Post-2018 Reform)
21%percent
US federal rate post Tax Cuts and Jobs Act
Interest Deductibility Limit
30%percent of taxable income
US tax code restriction on interest expense deductions
US Corporate Tax Rate (Post-2018 Reform)
25%percent
US non-financial service companies including state and local taxes
US Corporate Tax Rate (Pre-2018 Reform)
40%percent
US non-financial service companies before tax code changes