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Red Hat Inc (NYSE:RHT)
Interest Coverage
19.53 (As of Nov. 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. Red Hat Inc's Operating Income for the three months ended in Nov. 2014 was $67 Mil. Red Hat Inc's Interest Expense for the three months ended in Nov. 2014 was $-3 Mil. Red Hat Inc's interest coverage for the quarter that ended in Nov. 2014 was 19.53. The higher the ratio, the stronger the company’s financial strength is.

RHT' s 10-Year Interest Coverage Range
Min: 2.73   Max: 9999.99
Current: No Debt

2.73
9999.99

During the past 13 years, the highest interest coverage of Red Hat Inc was 9999.99. The lowest was 2.73. And the median was 22.64.

RHT's Interest Coverageis ranked higher than
93% of the 1364 Companies
in the Global Software - Application industry.

( Industry Median: 2350.48 vs. RHT: No Debt )

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

Red Hat Inc 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

Red Hat Inc had no debt.

Red Hat Inc's Interest Coverage for the fiscal year that ended in Feb. 2014 is calculated as

Here, for the fiscal year that ended in Feb. 2014, Red Hat Inc's Interest Expense was $0 Mil. Its Operating Income was $232 Mil. And its Long-Term Debt was $0 Mil.

Red Hat Inc had no debt.

Red Hat Inc's Interest Coverage for the quarter that ended in Nov. 2014 is calculated as

Here, for the three months ended in Nov. 2014, Red Hat Inc's Interest Expense was $-3 Mil. Its Operating Income was $67 Mil. And its Long-Term Debt was $711 Mil.

Interest Coverage=-1*Operating Income (Q: Nov. 2014 )/Interest Expense (Q: Nov. 2014 )
=-1*67.197/-3.441
=19.53

* 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.

Red Hat Inc Annual Data

Feb05Feb06Feb07Feb08Feb09Feb10Feb11Feb12Feb13Feb14
interest_coverage 4.1928.078.6911.2617.20611.88No DebtAt LossNo DebtNo Debt

Red Hat Inc Quarterly Data

Aug12Nov12Feb13May13Aug13Nov13Feb14May14Aug14Nov14
interest_coverage No DebtNo DebtNo DebtNo DebtNo DebtNo DebtNo DebtNo DebtNo Debt19.53
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