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Diageo PLC (NYSE:DEO)
Interest Coverage
1.74 (As of Jun. 2014)

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. Diageo PLC's Operating Income for the six months ended in Jun. 2014 was $1,129 Mil. Diageo PLC's Interest Expense for the six months ended in Jun. 2014 was $-650 Mil. Diageo PLC's interest coverage for the quarter that ended in Jun. 2014 was 1.74. The higher the ratio, the stronger the company’s financial strength is.

DEO' s 10-Year Interest Coverage Range
Min: 1.63   Max: 8.93
Current: 4.73

1.63
8.93

During the past 13 years, the highest interest coverage of Diageo PLC was 8.93. The lowest was 1.63. And the median was 4.10.

DEO's Interest Coverageis ranked higher than
63% of the 184 Companies
in the Global Beverages - Wineries & Distilleries industry.

( Industry Median: 7.37 vs. DEO: 4.73 )

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

Diageo PLC did not have earnings to cover the interest expense.

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

Diageo PLC had no debt.

Diageo PLC's Interest Coverage for the fiscal year that ended in Jun. 2014 is calculated as

Here, for the fiscal year that ended in Jun. 2014, Diageo PLC's Interest Expense was $-968 Mil. Its Operating Income was $4,580 Mil. And its Long-Term Debt was $12,924 Mil.

Interest Coverage=-1*Operating Income (A: Jun. 2014 )/Interest Expense (A: Jun. 2014 )
=-1*4580.37225042/-967.851099831
=4.73

Diageo PLC's Interest Coverage for the quarter that ended in Jun. 2014 is calculated as

Here, for the six months ended in Jun. 2014, Diageo PLC's Interest Expense was $-650 Mil. Its Operating Income was $1,129 Mil. And its Long-Term Debt was $12,924 Mil.

Interest Coverage=-1*Operating Income (Q: Jun. 2014 )/Interest Expense (Q: Jun. 2014 )
=-1*1128.59560068/-649.746192893
=1.74

* All numbers are in millions except for per share data and ratio. All numbers are in their own 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 own currency.

Diageo PLC Annual Data

Jun05Jun06Jun07Jun08Jun09Jun10Jun11Jun12Jun13Jun14
interest_coverage 3.208.935.964.513.153.054.014.905.184.73

Diageo PLC Semi-Annual Data

Dec09Jun10Dec10Jun11Dec11Jun12Dec12Jun13Dec13Jun14
interest_coverage 4.602.048.222.009.592.9110.033.0210.851.74
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