Interest Expense
The cost incurred by a company for borrowed funds, recorded on the income statement before taxes.
What is Interest Expense?
Interest expense is the cost a company incurs on its debt obligations — loans, bonds, credit lines, and other borrowings — recorded on the income statement as a deduction from earnings. It appears below operating income and is subtracted before calculating earnings before tax (EBT). Because interest expense is tax-deductible in most jurisdictions, it provides a tax shield that reduces the effective cost of debt financing. The interest coverage ratio (EBIT ÷ interest expense) measures how comfortably a company can service its debt — a ratio below 1.5x is generally considered a warning sign. Rising interest rates in 2022–2023 significantly increased interest expenses for highly leveraged companies.
Example
AT&T carries approximately $130 billion in total debt. In its 2023 annual report, AT&T reported approximately $6.6 billion in interest expense — equivalent to roughly 16% of revenue spent purely on debt service. This large interest burden limits free cash flow available for dividends, buybacks, and reinvestment, illustrating the long-term cost of excessive leverage.
Source: AT&T Inc. 10-K 2023 — SEC EDGAR