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GuruFocus has detected 9 Warning Signs with Microsoft Corp $MSFT.
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Microsoft Corp (NAS:MSFT)
Interest Coverage
9.19 (As of Mar. 2017)

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. Microsoft Corp's Operating Income for the three months ended in Mar. 2017 was $5,594 Mil. Microsoft Corp's Interest Expense for the three months ended in Mar. 2017 was $-609 Mil. Microsoft Corp's interest coverage for the quarter that ended in Mar. 2017 was 9.19. The higher the ratio, the stronger the company’s financial strength is.

MSFT' s Interest Coverage Range Over the Past 10 Years
Min: 10.5   Max: No Debt
Current: 10.5

MSFT's Interest Coverage is ranked lower than
71% of the 1467 Companies
in the Global Software - Infrastructure industry.

( Industry Median: 173.79 vs. MSFT: 10.50 )

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

The company had no debt.


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

Microsoft Corp's Interest Coverage for the fiscal year that ended in Jun. 2016 is calculated as

Here, for the fiscal year that ended in Jun. 2016, Microsoft Corp's Interest Expense was $-1,243 Mil. Its Operating Income was $20,182 Mil. And its Long-Term Debt was $40,783 Mil.

Interest Coverage=-1*Operating Income (A: Jun. 2016 )/Interest Expense (A: Jun. 2016 )
=-1*20182/-1243
=16.24

Microsoft Corp's Interest Coverage for the quarter that ended in Mar. 2017 is calculated as

Here, for the three months ended in Mar. 2017, Microsoft Corp's Interest Expense was $-609 Mil. Its Operating Income was $5,594 Mil. And its Long-Term Debt was $76,222 Mil.

Interest Coverage=-1*Operating Income (Q: Mar. 2017 )/Interest Expense (Q: Mar. 2017 )
=-1*5594/-609
=9.19

* 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.


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 local exchange's currency.

Microsoft Corp Annual Data

Jun07Jun08Jun09Jun10Jun11Jun12Jun13Jun14Jun15Jun16
interest_coverage No Debt210.10535.87159.5992.0757.2762.3946.5023.2516.24

Microsoft Corp Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
interest_coverage 48.00N/AN/A23.2719.5015.548.9311.9611.869.19
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