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GlaxoSmithKline PLC (NYSE:GSK)
Interest Coverage
4.61 (As of Dec. 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. GlaxoSmithKline PLC's Operating Income for the three months ended in Dec. 2014 was $1,081 Mil. GlaxoSmithKline PLC's Interest Expense for the three months ended in Dec. 2014 was $-235 Mil. GlaxoSmithKline PLC's interest coverage for the quarter that ended in Dec. 2014 was 4.61. The higher the ratio, the stronger the company’s financial strength is.

GSK' s 10-Year Interest Coverage Range
Min: 0.81   Max: 28.06
Current: 5.23

0.81
28.06

During the past 13 years, the highest interest coverage of GlaxoSmithKline PLC was 28.06. The lowest was 0.81. And the median was 11.99.

GSK's Interest Coverageis ranked lower than
51% of the 621 Companies
in the Global Drug Manufacturers - Major industry.

( Industry Median: 236.52 vs. GSK: 5.23 )

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.

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

Here, for the fiscal year that ended in Dec. 2014, GlaxoSmithKline PLC's Interest Expense was $-1,077 Mil. Its Operating Income was $5,629 Mil. And its Long-Term Debt was $24,790 Mil.

Interest Coverage=-1*Operating Income (A: Dec. 2014 )/Interest Expense (A: Dec. 2014 )
=-1*5629.10798122/-1076.68231612
=5.23

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

Here, for the three months ended in Dec. 2014, GlaxoSmithKline PLC's Interest Expense was $-235 Mil. Its Operating Income was $1,081 Mil. And its Long-Term Debt was $24,790 Mil.

Interest Coverage=-1*Operating Income (Q: Dec. 2014 )/Interest Expense (Q: Dec. 2014 )
=-1*1081.3771518/-234.741784038
=4.61

* 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.

GlaxoSmithKline PLC Annual Data

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
interest_coverage 0.8122.2017.518.4710.764.559.779.809.685.23

GlaxoSmithKline PLC Quarterly Data

Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14
interest_coverage 8.4111.917.787.308.2118.085.866.423.934.61
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