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Hello
This term is used with extra earnings calculation for convertible debt. Can you explain post tax interest saved? In particular, how it is an extra earnings. Hope you understand what I am requesting, I find it easier to grasp if I understand rather than memorise.
Hi,
Interest payments reduce profit and if we no longer pay interest as the debt has been converted then the profits will go up. However, as the profits increase the tax paid will increase too so the overall earning increase by the amount of interest but are then reduced slightly by the tax paid on the extra profit made.
The extra profit (earnings) less the tax paid is the post tax interest saved.
Thanks
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