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VMWare Inc (NYSE:VMW)
Interest Coverage
34.57 (As of Sep. 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. VMWare Inc's Operating Income for the three months ended in Sep. 2014 was $242 Mil. VMWare Inc's Interest Expense for the three months ended in Sep. 2014 was $-7 Mil. VMWare Inc's interest coverage for the quarter that ended in Sep. 2014 was 34.57. The higher the ratio, the stronger the company’s financial strength is.

Good Sign:

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

VMW' s 10-Year Interest Coverage Range
Min: 13.25   Max: 9999.99
Current: 273.25

13.25
9999.99

During the past 10 years, the highest interest coverage of VMWare Inc was 9999.99. The lowest was 13.25. And the median was 187.35.

VMW's Interest Coverageis ranked higher than
64% of the 1365 Companies
in the Global Software - Infrastructure industry.

( Industry Median: 985.82 vs. VMW: 273.25 )

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

VMWare 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

VMWare Inc had no debt.

VMWare Inc'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, VMWare Inc's Interest Expense was $-4 Mil. Its Operating Income was $1,093 Mil. And its Long-Term Debt was $450 Mil.

Interest Coverage=-1*Operating Income (A: Dec. 2013 )/Interest Expense (A: Dec. 2013 )
=-1*1093/-4
=273.25

VMWare Inc's Interest Coverage for the quarter that ended in Sep. 2014 is calculated as

Here, for the three months ended in Sep. 2014, VMWare Inc's Interest Expense was $-7 Mil. Its Operating Income was $242 Mil. And its Long-Term Debt was $1,500 Mil.

Interest Coverage=-1*Operating Income (Q: Sep. 2014 )/Interest Expense (Q: Sep. 2014 )
=-1*242/-7
=34.57

* 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.

VMWare Inc Annual Data

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
interest_coverage No DebtNo DebtAt Loss13.2516.8031.52105.18188.22187.35273.25

VMWare Inc Quarterly Data

Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14Sep14
interest_coverage 183.00163.81241.19160.00270.00287.00374.0048.2028.5734.57
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