Where to Find Interest Expense on Financial Statements

Interest expense is the cost a company incurs for borrowing funds. Much like an individual pays interest on a mortgage or car loan, a business must pay interest on the money it borrows from banks, bondholders, or other lenders. This expense is a direct result of a company’s financing decisions, reflecting how it chooses to fund its assets and operations.

Locating Interest Expense on the Income Statement

The primary location to find a company’s total interest expense for a period is the income statement. On a multi-step income statement, which provides a detailed breakdown of revenues and expenses, interest expense is classified as a non-operating item. This means it is found below the “operating income” or “EBIT” (Earnings Before Interest and Taxes) line.

Operating expenses are the costs associated with a company’s principal revenue-producing activities, such as the cost of goods sold, salaries, and marketing. Interest expense, conversely, arises from financing activities rather than core operations. By placing it after operating income, the income statement allows an analyst to first assess the profitability of the main business before considering the costs of its financing structure.

You will typically see a subtotal for operating income, followed by a section often titled “Other Income and Expense” or “Non-Operating Items.” Within this section, “Interest Expense” will be listed as a deduction. This leads to the next subtotal, “Income Before Taxes” or “EBT.” Some companies may present a single line item called “Interest Expense, net,” which combines the interest a company paid with any interest income it earned from its own investments.

Finding Details in the Notes to Financial Statements

While the income statement provides the total interest expense figure, the notes to the financial statements offer a much deeper level of detail. These notes, which are an integral part of the financial statements, provide narrative descriptions and detailed breakdowns of the numbers presented. They provide the context behind the single number shown on the income statement.

A user should look for a footnote typically titled “Debt,” “Long-Term Debt,” or “Financing Arrangements.” This section provides a comprehensive schedule of all the company’s outstanding debt obligations. It will break down the total debt into its individual components, such as bank loans, lines of credit, and various series of bonds issued by the company.

Within this note, you can find details for each debt instrument. The disclosure will list the principal amount of each loan or bond, its stated interest rate, and its maturity date. This information allows you to see what debt is costing the company the most and when these obligations are due to be repaid.

Related Information on Other Financial Statements

The story of interest expense extends beyond the income statement and its accompanying notes. The balance sheet and the statement of cash flows provide related information that completes the picture of a company’s debt and interest payments. These statements work together to provide a comprehensive view of a company’s financial position.

The balance sheet shows the outstanding principal amount of the debt that gives rise to the interest expense. Under the liabilities section, you will find line items such as “Loans Payable” or “Bonds Payable,” which represent the total amount the company owed to its creditors at a specific point in time.

The statement of cash flows reveals the actual amount of cash that was paid for interest during the reporting period. This figure is typically found within the “Cash Flows from Operating Activities” section. The cash paid for interest can differ from the interest expense on the income statement due to accrual accounting. Interest expense is recognized when it is incurred, regardless of when the cash is actually paid, whereas the cash flow statement reports the actual cash disbursement.