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Microsoft Corporation (NAS:MSFT)
Interest Coverage
59.03 (As of Dec. 2013)

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. Microsoft Corporation's Operating Income for the three months ended in Dec. 2013 was $7,969 Mil. Microsoft Corporation's Interest Expense for the three months ended in Dec. 2013 was $-135 Mil. Microsoft Corporation's interest coverage for the quarter that ended in Dec. 2013 was 59.03. The higher the ratio, the stronger the company’s financial strength is.

Good Sign:

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

MSFT' s 10-Year Interest Coverage Range
Min: 57.27   Max: 9999.99
Current: 62.39

57.27
9999.99

During the past 13 years, the highest interest coverage of Microsoft Corporation was 9999.99. The lowest was 57.27. And the median was 10000.00.

MSFT's Interest Coverageis ranked higher than
57% of the 1077 Companies
in the Global Software - Infrastructure industry.

( Industry Median: 403.68 vs. MSFT: 62.39 )

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

Microsoft Corporation 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

Microsoft Corporation had no debt.

Microsoft Corporation's Interest Coverage for the fiscal year that ended in Jun. 2013 is calculated as

Here, for the fiscal year that ended in Jun. 2013, Microsoft Corporation's Interest Expense was $-429 Mil. Its Operating Income was $26,764 Mil. And its Long-Term Debt was $12,601 Mil.

Interest Coverage=-1*Operating Income (A: Jun. 2013 )/Interest Expense (A: Jun. 2013 )
=-1*26764/-429
=62.39

Microsoft Corporation's Interest Coverage for the quarter that ended in Dec. 2013 is calculated as

Here, for the three months ended in Dec. 2013, Microsoft Corporation's Interest Expense was $-135 Mil. Its Operating Income was $7,969 Mil. And its Long-Term Debt was $20,676 Mil.

Interest Coverage=-1*Operating Income (Q: Dec. 2013 )/Interest Expense (Q: Dec. 2013 )
=-1*7969/-135
=59.03

* 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.

Microsoft Corporation Annual Data

Jun04Jun05Jun06Jun07Jun08Jun09Jun10Jun11Jun12Jun13
interest_coverage No DebtNo DebtNo DebtNo Debt210.10535.87159.5992.0757.2762.39

Microsoft Corporation Quarterly Data

Sep11Dec11Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13
interest_coverage 76.6384.1567.092.0055.8774.0169.8350.6153.6859.03
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