4 weeks ago
I should of course preface this by I'm NOT a tax expert.....
One of the most important tools in an analysts toolbox is that of analysing EBITDA from a company. EBITDA is Earnings before Interest, Tax, Depreciation and Amortisation. The reason both Interest added back to pre-tax earnings is because Interest is tax deductible.
Well hold on to your hats, one element of Trump's tax plan is to remove the deductibility of interest payments in exchange for immediate deductibility for capital expenditure. This removal of Interest deductibility will help pay for the lowering of the overall Corporate Tax rate.
Well there are some pretty interesting implications for this - namely for US High Yield companies. There is a point at which the benefit from a lower Corporate tax rate is offset by a removal of interest deductibility and for lowly rated highly geared High Yield companies (around single B credit rating), earnings available to service debt and to reward shareholders are actually lower!
its going to be an interest first half of 2017 - get ready to consider looking at EBT (Earnings before tax), rather than EBITDA going forward should Trump's tax plan become reality!