5 ms·
Your link itself says that in presence of taxes and tax deductible interest payments, i.e every single jurisdiction you care about, your firm can be significant
by mamonster 11mo ago
Your link itself says that in presence of taxes and tax deductible interest payments, i.e every single jurisdiction you care about, your firm can be significantly better off with debt. Saying debt and equity are equally valid suggests that you should be fine with a 100% equity financed company, which is completely false.
- eru 11mo ago> Saying debt and equity are equally valid suggests that you should be fine with a 100% equity financed company, which is completely false. I assume you mean 100% debt financed? In any case, that's also mostly fine and happens in practice. As soon as that dips above 100%, conceptually your creditors turn into shareholders.
- mamonster 11mo agoNo, I meant equity. If you are not using significant (20%+ of capital at a minimum)debt in your capital structure, you are almost guaranteed to be making a financial mistake.
- eru 11mo agoIt depends on your industry and stage of your company and jurisdiction. Many software startups run with 100% equity, and I don't think they are all idiots. A pet peeve of mine is people complaining about too much leverage, but then not doing anything about the tax systems making debt financing cheaper compared to equity.
- eru 11mo agoP.S. Some companies even have more than 100% equity. In a sense: when their market capitalisation exceeds their enterprise value.