Kainos has notched up
pretax returns of more than PS15million, a 7% hike on the previous year.
Comparing after-tax returns to
pretax returns can also be eye-opening.
This article examines the historical trend in community bank returns on equity (ROE) over the last 10 years and highlights the gap between current and historical
pretax returns.
The answer will depend on several key variables, including the future of the tax code, the growth rate of the assets under consideration, and the tax efficiency of those returns (in other words, how much of their
pretax returns investors get to keep).
Researchers in both public finance and financial economics have studied whether tax rules have a pronounced effect on asset pricing and the
pretax returns on various financial assets.
A tax-exempt investor is indifferent between the three types of bonds only if the expected
pretax returns are equal.
Brennan's (1970) model of these tax effects indicates that risk-adjusted
pretax returns should be positively correlated to dividend yields.
Since most fund managers look to maximize
pretax returns, they don't even consider the tax impact of their trading frequency.
Lyon advocates reducing or eliminating tax preferences that do not produce social returns in excess of their
pretax returns as the most direct alternative to the corporate AMT for improving efficiency.
As Figure 2 shows, production businesses can deliver from 45 percent to 135 percent
pretax returns on equity, depending upon the leverage ratio of the company and the all-in cost of production.
Planning suggestion: Corporations subject to the AMT may want to encourage dividend-paying companies in which they own 20% or more of the outstanding shares to sell their tax-exempt securities and invest in fully taxable securities that produce higher
pretax returns.
The Garland results found that the typical investor received only 41% of the preexpense,
pretax returns of the index.
