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Varian Medical Systems Inc (NYSE:VAR)
Interest Coverage
68.76 (As of Mar. 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. Varian Medical Systems Inc's Operating Income for the three months ended in Mar. 2014 was $128 Mil. Varian Medical Systems Inc's Interest Expense for the three months ended in Mar. 2014 was $-2 Mil. Varian Medical Systems Inc's interest coverage for the quarter that ended in Mar. 2014 was 68.76. The higher the ratio, the stronger the company’s financial strength is.

Good Sign:

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

VAR' s 10-Year Interest Coverage Range
Min: 4.34   Max: 226.41
Current: 147.47

4.34
226.41

During the past 13 years, the highest interest coverage of Varian Medical Systems Inc was 226.41. The lowest was 4.34. And the median was 54.99.

VAR's Interest Coverageis ranked higher than
79% of the 198 Companies
in the Global Medical Instruments & Supplies industry.

( Industry Median: 26.96 vs. VAR: 147.47 )

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

Varian Medical Systems 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

Varian Medical Systems Inc had no debt.

Varian Medical Systems Inc's Interest Coverage for the fiscal year that ended in Sep. 2013 is calculated as

Here, for the fiscal year that ended in Sep. 2013, Varian Medical Systems Inc's Interest Expense was $-4 Mil. Its Operating Income was $609 Mil. And its Long-Term Debt was $450 Mil.

Interest Coverage=-1*Operating Income (A: Sep. 2013 )/Interest Expense (A: Sep. 2013 )
=-1*608.89/-4.129
=147.47

Varian Medical Systems Inc's Interest Coverage for the quarter that ended in Mar. 2014 is calculated as

Here, for the three months ended in Mar. 2014, Varian Medical Systems Inc's Interest Expense was $-2 Mil. Its Operating Income was $128 Mil. And its Long-Term Debt was $413 Mil.

Interest Coverage=-1*Operating Income (Q: Mar. 2014 )/Interest Expense (Q: Mar. 2014 )
=-1*127.544/-1.855
=68.76

* 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.

Varian Medical Systems Inc Annual Data

Sep04Sep05Sep06Sep07Sep08Sep09Sep10Sep11Sep12Sep13
interest_coverage 54.9964.9266.5670.6885.96115.73130.04226.41173.76147.47

Varian Medical Systems Inc Quarterly Data

Dec11Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14
interest_coverage 155.51203.39164.62176.60158.76151.76177.04118.1075.0168.76
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