Ratio Analysis
Average Interest Rate
| = |
(Interest Expense
- Accounts Payable) |
 |
Liabilities |
Indicates the average
interest rate that a company borrows at.
| Things to remember |
- This is a rough estimate,
the ratio does not account for everything.
- Using the before tax or
after tax interest expense will produce different
results.
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[Click
on the image(s) above to see the financial statements] |
Interest Rate Analysis:
There are several versions of this ratio. Some people prefer
to just use interest bearing liabilities such as bonds and other short term loans. This formula won't give
you the exact interest rate the company is paying, but it is useful
in an interest rate sensitive environment. And if you compare
it to previous years then you are able to tell the rate at which the company had to take on more debt. You will notice from
the balance sheet above that Cory's Tequila Co. doesn't have any
long term debt, therefore you will not find an interest expense.
It's a great position to be in; practically debt free.
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