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BHP Billiton Ltd (NYSE:BHP)
Interest Coverage
1.76 (As of Jun. 2016)

Interest Coverage is a ratio that determines how easily a company can pay interest expenses on outstanding debt. It is calculated by dividing a company’s Operating Income (EBIT) by its Interest Expense. BHP Billiton Ltd's Operating Income for the six months ended in Jun. 2016 was $795 Mil. BHP Billiton Ltd's Interest Expense for the six months ended in Jun. 2016 was $-452 Mil. BHP Billiton Ltd's interest coverage for the quarter that ended in Jun. 2016 was 1.76. The higher the ratio, the stronger the company’s financial strength is.

Note: If both Interest Expense and Interest Income are empty, while Net Interest Income is negative, then use Net Interest Income as Interest Expense.


Definition

Interest Coverage is a ratio that determines how easily a company can pay interest expenses on outstanding debt. It is calculated by dividing a company’s Operating Income (EBIT) by its Interest Expense:

If Interest Expense is negative and Operating Income is positive, then

Interest Coverage=-1*Operating Income/Interest Expense

Else if Interest Expense is negative and Operating Income is negative, then

The company did not have earnings to cover the interest expense.

Else if Interest Expense is 0 and Long-Term Debt is 0, then

The company had no debt.


Note: If both Interest Expense and Interest Income are empty, while Net Interest Income is negative, then use Net Interest Income as Interest Expense.

BHP Billiton Ltd's Interest Coverage for the fiscal year that ended in Jun. 2016 is calculated as

Here, for the fiscal year that ended in Jun. 2016, BHP Billiton Ltd's Interest Expense was $-848 Mil. Its Operating Income was $-6,235 Mil. And its Long-Term Debt was $31,768 Mil.

BHP Billiton Ltd did not have earnings to cover the interest expense.

BHP Billiton Ltd's Interest Coverage for the quarter that ended in Jun. 2016 is calculated as

Here, for the six months ended in Jun. 2016, BHP Billiton Ltd's Interest Expense was $-452 Mil. Its Operating Income was $795 Mil. And its Long-Term Debt was $31,768 Mil.

Interest Coverage=-1*Operating Income (Q: Jun. 2016 )/Interest Expense (Q: Jun. 2016 )
=-1*795/-452
=1.76

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

The higher the ratio, the stronger the company’s financial strength is.


Explanation

Ben Graham requires that a company has a minimum interest coverage of 5 with the companies he invested. If the interest coverage is less than 2, the company is burdened by debt. Any business slow or recession may drag the company into a situation where it cannot pay the interest on its debt.

Interest Coverage is an important factor when GuruFocus ranks a company’s overage financial strength.


Related Terms

Operating Income, Interest Expense, Financial Strength


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

BHP Billiton Ltd Annual Data

Jun07Jun08Jun09Jun10Jun11Jun12Jun13Jun14Jun15Jun16
interest_coverage 25.4225.2814.27101.68129.3354.5531.8546.6022.94At Loss

BHP Billiton Ltd Semi-Annual Data

Dec11Jun12Dec12Jun13Dec13Jun14Dec14Jun15Dec15Jun16
interest_coverage 72.0637.8728.3634.2548.9943.7746.653.56At Loss1.76
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