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International Business Machines Corp (NYSE:IBM)
Interest Coverage
34.00 (As of Jun. 2015)

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. International Business Machines Corp's Operating Income for the three months ended in Jun. 2015 was $3,910 Mil. International Business Machines Corp's Interest Expense for the three months ended in Jun. 2015 was $-115 Mil. International Business Machines Corp's interest coverage for the quarter that ended in Jun. 2015 was 34.00. The higher the ratio, the stronger the company’s financial strength is.

IBM' s 10-Year Interest Coverage Range
Min: 10.47   Max: 69.58
Current: 36.76

10.47
69.58

During the past 13 years, the highest interest coverage of International Business Machines Corp was 69.58. The lowest was 10.47. And the median was 41.85.

IBM's Interest Coverageis ranked lower than
73% of the 1143 Companies
in the Global Information Technology Services industry.

( Industry Median: 10000.00 vs. IBM: 36.76 )

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.

International Business Machines Corp'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, International Business Machines Corp's Interest Expense was $-484 Mil. Its Operating Income was $17,790 Mil. And its Long-Term Debt was $35,073 Mil.

Interest Coverage=-1*Operating Income (A: Dec. 2014 )/Interest Expense (A: Dec. 2014 )
=-1*17790/-484
=36.76

International Business Machines Corp's Interest Coverage for the quarter that ended in Jun. 2015 is calculated as

Here, for the three months ended in Jun. 2015, International Business Machines Corp's Interest Expense was $-115 Mil. Its Operating Income was $3,910 Mil. And its Long-Term Debt was $33,339 Mil.

Interest Coverage=-1*Operating Income (Q: Jun. 2015 )/Interest Expense (Q: Jun. 2015 )
=-1*3910/-115
=34.00

* 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.

International Business Machines Corp Annual Data

Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14
interest_coverage 41.5742.9422.1223.6842.3249.3249.3644.5448.4836.76

International Business Machines Corp Quarterly Data

Mar13Jun13Sep13Dec13Mar14Jun14Sep14Dec14Mar15Jun15
interest_coverage 36.7839.8449.6261.0428.1237.4333.6347.0825.8534.00
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