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Spartech Corporation (NYSE:SEH)
Interest Coverage
0.89 (As of Oct. 2012)

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. Spartech Corporation's Operating Income for the three months ended in Oct. 2012 was \$2 Mil. Spartech Corporation's Interest Expense for the three months ended in Oct. 2012 was \$-3 Mil. Spartech Corporation's interest coverage for the quarter that ended in Oct. 2012 was 0.89. The higher the ratio, the stronger the companys financial strength is.

Note: If both Interest Expense and Interest Income are empty, while Net Interest Income is negative, then use Net Interest Income as Interest Expense.

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

Note: If both Interest Expense and Interest Income are empty, while Net Interest Income is negative, then use Net Interest Income as Interest Expense.

Spartech Corporation's Interest Coverage for the fiscal year that ended in Oct. 2012 is calculated as

Here, for the fiscal year that ended in Oct. 2012, Spartech Corporation's Interest Expense was \$-12 Mil. Its Operating Income was \$16 Mil. And its Long-Term Debt was \$112 Mil.

 Interest Coverage = -1 * Operating Income (A: Oct. 2012 ) / Interest Expense (A: Oct. 2012 ) = -1 * 15.613 / -11.875 = 1.31

Spartech Corporation's Interest Coverage for the quarter that ended in Oct. 2012 is calculated as

Here, for the three months ended in Oct. 2012, Spartech Corporation's Interest Expense was \$-3 Mil. Its Operating Income was \$2 Mil. And its Long-Term Debt was \$112 Mil.

 Interest Coverage = -1 * Operating Income (Q: Oct. 2012 ) / Interest Expense (Q: Oct. 2012 ) = -1 * 2.452 / -2.745 = 0.89

* 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

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Spartech Corporation Annual Data

 Oct03 Oct04 Oct05 Oct06 Oct07 Oct08 Oct09 Oct10 Oct11 Oct12 interest_coverage 5.32 3.65 1.91 4.23 4.00 At Loss 1.70 At Loss At Loss 1.31

Spartech Corporation Quarterly Data

 Jul10 Oct10 Jan11 Apr11 Jul11 Oct11 Jan12 Apr12 Jul12 Oct12 interest_coverage At Loss At Loss At Loss 2.64 2.99 At Loss At Loss 2.92 1.62 0.89
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