Interest Expense
Short definition
Interest expense is the period cost of financial debt. Accrual (P&L) and cash paid can diverge; capitalised interest defers the cash outlay, while DSCR wants cash interest.
Detailed explanation
The effective-interest method spreads fees over the tenor. Reference rate + margin gaps accrual on floating debt. On FX debt, interest may be in FX with translation in a separate line.
The tax shield is real only to the extent of cash interest × T; loss carry-forwards and thin-capitalisation cut it. Kd in WACC is the market counterpart of this cost, not the historic coupon.
Why it matters for the CFO
The ICR denominator, the cash budget and the tax shield hang on this line. Mixing accrual with cash breaks both profit and DSCR.
How it is calculated
Nakit faiz ≈ Çekilmiş bakiye × efektif faiz (artı ücretlerin faizleştirilen kısmı)
Variables in the formula
- Interest: Period interest expense / cash interest
How to read it
Interest / gross debt ≈ average effective rate (coarse). A new margin off that average reveals refinancing cost.
Numerical example
Average drawn debt 400 mn TL, effective rate 25% → annual interest ≈ 100 mn TL.
Related calculators
Güven Sayılgan’s writing on this topic
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Definitions are educational. They are not investment, credit or tax advice.