# Interest Expense

RECENT NEWS
SeekingAlpha  Jun 11  Comment
Motley Fool  Dec 13  Comment
Knowing how much your company will owe over a bond's lifetime can give you a better sense of the true cost of debt.
Motley Fool  Nov 30  Comment
No. (Except for when it does.)
SeekingAlpha  Jun 17  Comment
MarketWatch  Mar 13  Comment
El Pollo Loco swings to a profit in the fourth quarter after posting higher sales and lower interest expenses.
SeekingAlpha  Nov 24  Comment
StreetInsider.com  Jul 20  Comment
Visit StreetInsider.com at http://www.streetinsider.com/Guidance/eBay+%28EBAY%29+Trims+FY12%2C+Q3+non-GAAP+EPS+Outlook+Slightly+on+%243B+Debt+Offering%3B+Cites+Interest+Expense/7592992.html for the full story.

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WIKI ANALYSIS

Interest Expense is the amount of money a company pays in interest on its debt.

A company's interest expense tells an investor how much of the company's cash flow is going to pay the interest on its debt.

Interest expense is most commonly used to calculate a company's Interest Coverage Ratio, calculated by dividing a company's Earnings Before Interest and Taxes (EBIT) by its interest expense. Investors use this ratio as a yardstick of the company's financial health. Larger values are better. A ratio of one indicates all of the company's cash flow is used to pay interest - an extremely unhealthy scenario. Ratios below one indicate the company is not generating enough cash even to pay the interest on its debt.

## Example

Company ABC borrowed \$500,000 from a bank and promised to pay 10% interest over the course of the year with payments occurring at the end of each quarter. At the end of each quarter, the interest expense is \$12,500 (500,000 X 0.10 X1/4 = 12,500).

Because interest is accrued, a company will still report interest expense each quarter even if it only pays interest once a year (ie, it will report 1/4 of the expense each quarter, rather than the total all at once).