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Hormel Foods Corp (NYSE:HRL)
Interest Coverage
68.64 (As of Jul. 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. Hormel Foods Corp's Operating Income for the three months ended in Jul. 2014 was $215 Mil. Hormel Foods Corp's Interest Expense for the three months ended in Jul. 2014 was $-3 Mil. Hormel Foods Corp's interest coverage for the quarter that ended in Jul. 2014 was 68.64. The higher the ratio, the stronger the company’s financial strength is.

Good Sign:

Ben Graham prefers companies interest coverage is at least 5. Hormel Foods Corp has enough cash to cover all of its debt. Its financial situation is stable.

HRL' s 10-Year Interest Coverage Range
Min: 9.74   Max: 122.27
Current: 63.08

9.74
122.27

During the past 13 years, the highest interest coverage of Hormel Foods Corp was 122.27. The lowest was 9.74. And the median was 17.68.

HRL's Interest Coverageis ranked higher than
77% of the 978 Companies
in the Global Packaged Foods industry.

( Industry Median: 15.03 vs. HRL: 63.08 )

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

Hormel Foods Corp 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

Hormel Foods Corp had no debt.

Hormel Foods Corp's Interest Coverage for the fiscal year that ended in Oct. 2013 is calculated as

Here, for the fiscal year that ended in Oct. 2013, Hormel Foods Corp's Interest Expense was $-12 Mil. Its Operating Income was $785 Mil. And its Long-Term Debt was $250 Mil.

Interest Coverage=-1*Operating Income (A: Oct. 2013 )/Interest Expense (A: Oct. 2013 )
=-1*785.476/-12.453
=63.08

Hormel Foods Corp's Interest Coverage for the quarter that ended in Jul. 2014 is calculated as

Here, for the three months ended in Jul. 2014, Hormel Foods Corp's Interest Expense was $-3 Mil. Its Operating Income was $215 Mil. And its Long-Term Debt was $250 Mil.

Interest Coverage=-1*Operating Income (Q: Jul. 2014 )/Interest Expense (Q: Jul. 2014 )
=-1*214.504/-3.125
=68.64

* 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.

Hormel Foods Corp Annual Data

Oct04Oct05Oct06Oct07Oct08Oct09Oct10Oct11Oct12Oct13
interest_coverage 14.0115.3517.5817.4718.3319.1724.3231.6656.4663.08

Hormel Foods Corp Quarterly Data

Apr12Jul12Oct12Jan13Apr13Jul13Oct13Jan14Apr14Jul14
interest_coverage 59.3253.5951.8164.0659.4950.5070.9876.6663.7168.64
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