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Electro Rent Corp  (NAS:ELRC) Interest Coverage: 7.75 (As of Feb. 2016)

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. Electro Rent Corp's Operating Income for the three months ended in Feb. 2016 was \$1.7 Mil. Electro Rent Corp's Interest Expense for the three months ended in Feb. 2016 was \$-0.2 Mil. Electro Rent Corp's interest coverage for the quarter that ended in Feb. 2016 was 7.75. 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.

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Electro Rent Corp Annual Data

 May06 May07 May08 May09 May10 May11 May12 May13 May14 May15 Interest Coverage 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00

Electro Rent Corp Quarterly Data

 May11 Aug11 Nov11 Feb12 May12 Aug12 Nov12 Feb13 May13 Aug13 Nov13 Feb14 May14 Aug14 Nov14 Feb15 May15 Aug15 Nov15 Feb16 Interest Coverage 10,000.00 10,000.00 17.33 10,000.00 7.75

Competitive Comparison
* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap.

Calculation

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 & Capital Lease Obligation 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.

Electro Rent Corp's Interest Coverage for the fiscal year that ended in May. 2015 is calculated as

Here, for the fiscal year that ended in May. 2015, Electro Rent Corp's Interest Expense was \$0.0 Mil. Its Operating Income was \$22.9 Mil. And its Long-Term Debt & Capital Lease Obligation was \$0.0 Mil.

 Electro Rent Corp had no debt.

Electro Rent Corp's Interest Coverage for the quarter that ended in Feb. 2016 is calculated as

Here, for the three months ended in Feb. 2016, Electro Rent Corp's Interest Expense was \$-0.2 Mil. Its Operating Income was \$1.7 Mil. And its Long-Term Debt & Capital Lease Obligation was \$0.0 Mil.

 Interest Coverage = -1 * Operating Income (Q: Feb. 2016 ) / Interest Expense (Q: Feb. 2016 ) = -1 * 1.712 / -0.221 = 7.75

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's 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 .

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