TTM interest expense is the total interest cost a company recognized on its income statement over the trailing twelve months, the four most recent fiscal quarters. It gives a current, full-year measure of what the company's borrowing costs, and it updates with every quarterly filing.
Interest expense includes interest on bonds, loans, and credit lines, along with amortization of debt discounts and issuance costs. Interest that a company capitalizes into the cost of assets it is building is not included, since that interest is added to the asset rather than expensed.
Companies usually tag the quarterly figure InterestExpense in XBRL, the cost of borrowed funds recognized as an expense. Regulation S-X Rule 5-03.8 lists interest and amortization of debt discount and expense as its own caption on the income statement. Some companies instead report a single net figure after interest income, which is a separate measure, interest expense net. Banks and other lenders present interest expense very differently, as a cost of funding within net interest income, so it is not comparable with an industrial company's figure.
Quarterly income statements in a 10-Q include both the three-month and year-to-date columns, and the fourth quarter is derived as the 10-K annual figure minus the nine-month figure from the third-quarter 10-Q. Summing the latest four quarters gives the trailing total. Because interest follows the debt balance and the rate on it, a trailing year reflects the average cost across that period. After a large borrowing or repayment late in the year, the latest quarter times four may be a better guide to the run rate.
TTM interest expense is the denominator of interest coverage ratios such as EBIT to interest expense and EBITDA to interest expense, which lenders and credit analysts use to judge whether earnings comfortably cover borrowing costs. Taxed at the effective rate it becomes TTM after-tax interest expense, which is added back to operating cash flow when calculating cash flow to the firm.
A: Not exactly. Interest expense is the accrual-based cost for the period, including amortized discounts. Interest paid is the cash actually sent to lenders, which companies disclose separately in the cash flow statement or its notes.
A: Interest incurred while constructing an asset is added to that asset's cost and depreciated later, rather than being expensed right away.
A: Coverage ratios compare a full year of earnings with a full year of interest. Using twelve trailing months on both sides keeps the comparison current and consistent.
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