Definition:

Other Interest Expense refers to the cost incurred by a company for borrowing funds through means other than its primary debt instruments. This can include interest on short-term loans, lines of credit, or any other non-primary financial obligations.

Examples:

Examples of Other Interest Expense include interest paid on a company's credit card balances, interest on short-term bank loans, or interest on any other non-core financial liabilities.

Formula:

Other Interest Expense = Total Interest Expense - Primary Debt Interest Expense

How to use the metric:

This metric is used to assess the additional cost of borrowing that a company incurs outside of its main debt obligations. It helps in understanding the overall financial leverage and the cost of maintaining liquidity through various financial instruments.

Limitations:

One limitation is that it may not provide a complete picture of a company's financial health, as it only focuses on non-primary interest expenses. It may also vary significantly between companies depending on their financial strategies and access to credit.

Applies to:

This metric is applicable to industries with significant short-term financing needs, such as retail, manufacturing, and any industry where companies frequently use lines of credit or short-term loans.

Doesn't apply to:

Industries with minimal reliance on short-term borrowing, such as technology firms with substantial cash reserves, may find this metric less relevant. These companies often finance operations through equity or retained earnings rather than debt.

Summary:

Other Interest Expense is a financial metric that captures the cost of borrowing through non-primary debt instruments. It is useful for understanding a company's additional borrowing costs but should be considered alongside other financial metrics for a comprehensive analysis.