SeaBud Let me lead by saying congrats on 88% return in a short time! I also like to put my ideas out there and confirm that I have my facts/analysis right . One of my favourite Graham quotes
‘The stock investor is neither right or wrong because others agreed or disagreed with him, he is right because his facts and analysis are right.’
The above contains the numbers VRX filed with the SEC.
My understaning is Interest Coverage is calculated by dividing a company's Operating Income (EBIT) by its Interest Expense. https://www.investopedia.com/university/ratios/debt/ratio5.asp
Interest Coverage = (Operating Income / Interest Expense)
For VRX (Sep. 2017),
Operating income was 38 million
Interest Expense was 459 million
For VRX 2017 TTM
Operating income was 574 million
Interest Expense was 1836 million
(you will find the numbers in the CONSOLIDATED STATEMENTS OF OPERATIONS in the SEC filing)
Therefore, the interest coverage was = (38/459) = 0.08 (for Sept.2017) and the interest coverage 2017 TTM was = (574/1836) = 0.31
Ben Graham stated one should not invest if interest coverage is less than 5. Some investors who have lower standards of safety are comfortable with 3... but less than 1 would be a red flag for everyone i would imagine. Unfortunately VRX appears to have had a low interest coverage for some time, and their revenues are trending down. Graham would have never invested in them at any time in it's recent history due to this lack of financial strength.
If using the EBITDA Coverage Ratio then for 2017 TTM = ($3308/ $1859) = 1.78
This means that VRX has enough earnings to sustain 1.78 years of its interest expenses, if it stays stagnant.
The current interest coverage is dismal and VRX is teetering on bankruptcy, and the slightest set back may put them under.