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HCP Inc (NYSE:HCP)
Interest Coverage
1.29 (As of Sep. 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. HCP Inc's Operating Income for the three months ended in Sep. 2016 was \$152 Mil. HCP Inc's Interest Expense for the three months ended in Sep. 2016 was \$-118 Mil. HCP Inc's interest coverage for the quarter that ended in Sep. 2016 was 1.29. 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

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

HCP Inc'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, HCP Inc's Interest Expense was \$-440 Mil. Its Operating Income was \$883 Mil. And its Long-Term Debt was \$9,760 Mil.

 Interest Coverage = -1 * Operating Income (A: Dec. 2014 ) / Interest Expense (A: Dec. 2014 ) = -1 * 882.622 / -439.742 = 2.01

HCP Inc's Interest Coverage for the quarter that ended in Sep. 2016 is calculated as

Here, for the three months ended in Sep. 2016, HCP Inc's Interest Expense was \$-118 Mil. Its Operating Income was \$152 Mil. And its Long-Term Debt was \$9,549 Mil.

 Interest Coverage = -1 * Operating Income (Q: Sep. 2016 ) / Interest Expense (Q: Sep. 2016 ) = -1 * 152.434 / -117.86 = 1.29

* 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

Historical Data

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

HCP Inc Annual Data

 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 interest_coverage 0.24 1.14 1.59 1.32 1.29 1.17 2.49 1.92 2.01 At Loss

HCP Inc Quarterly Data

 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 interest_coverage 1.95 2.14 1.89 At Loss 1.18 1.11 At Loss 1.41 1.50 1.29
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