Edge stretchability has become an important performance index in automotive sheet metal component manufacturing. In this paper, a quantitative method has been introduced to evaluate effects of punching of sheet metal on the degradation of its edge stretchability with the employment of the index, Effective Failure Strain Ratio (EFSR). The magnitude of EFSR depends on the severity of damages expressed as the imperfection value in M–K model, which corresponds to the edge damage caused by preprocessing such as punching. Based on the method, numerical studies were conducted to investigate the interaction effect of cracks and anisotropy influence on the degradation of edge stretchability. Results of hole-expansion simulations with two damage zones preset showed that cracks at different locations along the edge developed with high independence. Results of simulations under different anisotropy in term of R¯ and Δr showed that the degradation of edge stretchability of materials with lower anisotropic coefficient (r-value) was more sensitive to the edge pre-damage. According to simulations, for transversely anisotropic materials, cracks were prone to appearing along the direction with the lowest r-value within the sheet plate. Punching and hole-expansion experiments using Dual Phase (DP) steel were conducted to validate the conclusions. The locations of the firstly appearing cracks on specimens were coincident with simulation results.