My grandfather, Merton Miller, used to always tell a joke about Yogi Berra ordering a pizza. He would order the pizza and they would bring it out to his table where the waiter would then ask him how he would like the pizza sliced, into sixths or into eighths. To which Yogi Berra would say, "cut it into 8ths because I'm feeling hungry."
BigStinkyT-Rex
Really well done! I came here to learn about M&Ms principle and walked away doing just that! Well done sir!
JoshCamacho
By far one of the best explanations on YouTube I could find. You should consider teacher this to university students.
kingdoggie
I wish i saw this video before my finance exam, but i am gonna take it one more this time year so hopefully i can use some of this stuff. Thank you so much sir.
zenox
My book in my corporate finance class seriously overexplained this concept lmao, this was easy to understand with the video!
Takeaways: As a buisness owner you want to structure the way your company is financed with as much debt as you possibly can simply because of tax-deduction, in other words if you finance ur company using debt you are able to exploit the tax-system.
And a buisness needs to keep some % of its financing in equity because it provides bad-luck protection, in fluxiating economies, markets and financial politics things change and you wouldn't be a good buisness owner if you didn't protect the downside, its basically just riskmanagement.
christopherwang
Thank u so much, u have managed to turn a very difficult concept into an easy one for beginners
tatalato
Extremely Informative and great Presentation. I got yourself a new Subscriber! Thanks!
SaptadipDey-mg
Excellent video, keep on doing videos like this.
sokairyk
Great video! But what do I miss?
I get that the capitalstructure is irrelevant regarding EBIT but it can not be true for ROE - even if you do not consider deductables and taxes?!
If you see it from an accounting/reporting perspective where equity is a residual size and (last-ranking in the event of liquidation ) compared to debt, which is always served first. There are always some provision for debt equity but never for equity.
Also: Anyone who has ever recognized goodwill in a business transaction, knows that it is significantly influenced by the debt capital acquired.
Thanks for a reply :)
Markus-umlk
As the share price fluctuates in short term or long term basis hence, the MM had thought the debt is high thus equity should be proportionate.
suindude
As the ratio and based on intrinsic value the structuring this Modigliani Miller showing some calculation as the so many cycles are in generated EBIT.
suindude
In case of ROCE M+M theory does not give significant impact although the ROE has a big impact on the Returns made by the investment. through the choice of investment.
girishpai
Hey, great video as usual.
I have a question: so if there is a profit, debt reduces the taxable income and so the more debt you have the more the taxable income is reduced, and if there is profit the total return on investment of a levered firm will always be greater than a firm with just equity, with the same ebit and the same tax deduction rate. Did I get it right? So, the same ebit for the debt holders and equity holders combined is worth more if the firm is levered.
asgardro
Sir in the first restaurant's case did you mean that 1 million is Revenue? Cuz for getting EBIT shouldn't we subtract at least operating expenses or cost of goods produced in our case 500K? ( 1million - 500K= 500K ) ?
mahammadaliyev
aren't most of these models wrong - i'm reading a book by thaler (misbehavior) he didn't have the most flattering comments for miller and his ideas (seem stuck in old school U of C group think). i'm not a finance or econ guy (computer) so i probably have no idea what i'm talking about
dixztube
Airline companies have more debt because most of their crafts are leased which is equal to a loan...i.e. debt capital
