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Interest Expense
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| Interest Expense to Total Debt =
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Long-Term Debt + Short-Term Debt
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Explanation of Interest Expense to Total Debt:
The Interest Expense to Total Debt ratio measures the
estimated interest rate the company is paying on its total debt.
This ratio assumes both Short-Term and Long-Term Debt are summed together,
as the Interest Expense figure is usually shown on the income statement as a
summation of short and long-term interest expenses.
Importance of Interest Expense to Total Debt:
The Interest Expense to Total Debt ratio should not change
very much from quarter to quarter, but you may see the ratio change from year
to year. If this ratio rises quickly over a given time period, this may
indicate the company is paying a higher than normal interest rate on this debt,
and may point to credit problems within the company. A decreasing
Interest Expense to Total Debt ratio may indicate the company has either
taken on more debt at a lower interest rate, or they have been able to
renegotiate the terms of their debt. Acquisitions may also have a
positive or negative affect on the overall interest rate, if the company takes
over the acquired company's debt.
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