Finance Cost
AdvancedFinance cost is the total cost of a company's borrowing for a period, mainly interest on loans and bonds, but also items such as interest on lease liabilities and the unwinding of discounts on long-term provisions.
Finance cost is the term used under IFRS for the line in the income statement that shows the cost of financing. It typically appears below operating profit, separating the costs of running the business from the costs of how it is funded.
Besides interest on bank loans and bonds, finance cost can include interest on lease liabilities, the gradual increase in the present value of long-term provisions as time passes, certain fees on borrowing spread over the loan's life, and some foreign exchange differences on borrowings.
For example, a company with 10,000,000 of debt at an average interest rate of 5% would have finance costs of about 500,000 a year from interest alone, plus any lease interest.
US companies more often use the term interest expense. Finance cost is used in ratios such as interest coverage. Analysts should check what is included, since companies may present items such as finance income separately or net it against finance costs.
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