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Herbalife Ltd (NYSE:HLF)
Interest Coverage
1.15 (As of Sep. 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. Herbalife Ltd's Operating Income for the three months ended in Sep. 2014 was $28 Mil. Herbalife Ltd's Interest Expense for the three months ended in Sep. 2014 was $-24 Mil. Herbalife Ltd's interest coverage for the quarter that ended in Sep. 2014 was 1.15. The higher the ratio, the stronger the company’s financial strength is.

HLF' s 10-Year Interest Coverage Range
Min: 1.13   Max: 57
Current: 27.69

1.13
57

During the past 11 years, the highest interest coverage of Herbalife Ltd was 57.00. The lowest was 1.13. And the median was 27.69.

HLF's Interest Coverageis ranked higher than
70% of the 1082 Companies
in the Global Household & Personal Products industry.

( Industry Median: 16.77 vs. HLF: 27.69 )

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

Herbalife Ltd 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

Herbalife Ltd had no debt.

Herbalife Ltd's Interest Coverage for the fiscal year that ended in Dec. 2013 is calculated as

Here, for the fiscal year that ended in Dec. 2013, Herbalife Ltd's Interest Expense was $-27 Mil. Its Operating Income was $735 Mil. And its Long-Term Debt was $850 Mil.

Interest Coverage=-1*Operating Income (A: Dec. 2013 )/Interest Expense (A: Dec. 2013 )
=-1*735.277/-26.552
=27.69

Herbalife Ltd's Interest Coverage for the quarter that ended in Sep. 2014 is calculated as

Here, for the three months ended in Sep. 2014, Herbalife Ltd's Interest Expense was $-24 Mil. Its Operating Income was $28 Mil. And its Long-Term Debt was $1,728 Mil.

Interest Coverage=-1*Operating Income (Q: Sep. 2014 )/Interest Expense (Q: Sep. 2014 )
=-1*27.642/-23.964
=1.15

* 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.

Herbalife Ltd Annual Data

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
interest_coverage 1.134.996.5029.6225.1330.7940.1057.0039.5227.69

Herbalife Ltd Quarterly Data

Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14
interest_coverage 58.9232.1736.8531.4434.6028.6833.107.178.111.15
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