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Phillips 66 (NYSE:PSX)
Interest Coverage
22.03 (As of Jun. 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. Phillips 66's Operating Income for the three months ended in Jun. 2014 was $1,454 Mil. Phillips 66's Interest Expense for the three months ended in Jun. 2014 was $-66 Mil. Phillips 66's interest coverage for the quarter that ended in Jun. 2014 was 22.03. The higher the ratio, the stronger the company’s financial strength is.

PSX' s 10-Year Interest Coverage Range
Min: 21.04   Max: 1319
Current: 21.04

21.04
1319

During the past 5 years, the highest interest coverage of Phillips 66 was 1319.00. The lowest was 21.04. And the median was 389.65.

PSX's Interest Coverageis ranked higher than
84% of the 125 Companies
in the Global Oil & Gas Refining & Marketing industry.

( Industry Median: 6.96 vs. PSX: 21.04 )

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

Phillips 66 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

Phillips 66 had no debt.

Phillips 66'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, Phillips 66's Interest Expense was $-275 Mil. Its Operating Income was $5,785 Mil. And its Long-Term Debt was $6,131 Mil.

Interest Coverage=-1*Operating Income (A: Dec. 2013 )/Interest Expense (A: Dec. 2013 )
=-1*5785/-275
=21.04

Phillips 66's Interest Coverage for the quarter that ended in Jun. 2014 is calculated as

Here, for the three months ended in Jun. 2014, Phillips 66's Interest Expense was $-66 Mil. Its Operating Income was $1,454 Mil. And its Long-Term Debt was $6,174 Mil.

Interest Coverage=-1*Operating Income (Q: Jun. 2014 )/Interest Expense (Q: Jun. 2014 )
=-1*1454/-66
=22.03

* 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.

Phillips 66 Annual Data

Dec09Dec10Dec11Dec12Dec13
interest_coverage At LossAt LossAt LossAt LossAt Loss847.001,319.00389.6526.9621.04

Phillips 66 Quarterly Data

Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14
interest_coverage 82.2322.8233.0916.0430.4321.8013.2517.5719.8122.03
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