SciELO - Scientific Electronic Library Online

 
vol.35 issue69Mandelbrot, Fama and the emergence of econophysicsIncome distribution in the Colombian economy from an econophysics perspective author indexsubject indexarticles search
Home Pagealphabetic serial listing  

Services on Demand

Article

Indicators

Related links

  • On index processCited by Google
  • Have no similar articlesSimilars in SciELO
  • On index processSimilars in Google

Share


Cuadernos de Economía

Print version ISSN 0121-4772

Abstract

VELEZ-PAREJA, Ignacio. Tax shields, financial expenses and losses carried forward. Cuad. Econ. [online]. 2016, vol.35, n.69, pp.663-689. ISSN 0121-4772.  http://dx.doi.org/10.15446/cuad.econ.v35n69.54352.

This article deals with the proper procedure for calculating Tax Shields (TS). The calculation includes cases where Losses Carried Forward are allowed and there is financial Other Income (OI). The procedure takes into account the magnitude of Adjusted Earnings before Interest and Taxes (EBITAdj) -that is, EBIT + OI - OE excluding Financial- compared with Financial Expenses (FE). This comparison defines three intervals and results for TS. If EBITAdj. < 0, TS will be 0; if EBITAdj. > 0 and less than FE, TS is T x EBITAdj.; finally if EBITAdj. > FE, TS is T x FE. When firm possesses OI, TS are not equivalent to the difference in taxes and an adjustment is needed. Proper calculation of TS is important because their value might represent a substantial part of firm value.

Keywords : Weighted Average Cost of Capital (WACC); firm valuation; tax shields; tax savings; losses carried forward.

        · abstract in Spanish | French | Portuguese     · text in English     · English ( pdf )

 

Creative Commons License All the contents of this journal, except where otherwise noted, is licensed under a Creative Commons Attribution License