Taxes: Mandatory contributions companies pay to the government*.

Interest: Also called interest expense, interest is the cost an entity incurs for borrowing money.

Earnings: The net income or net loss (aka profit or loss) of a company.

LetвЂ™s take a look at what each of those means: EBITDA meaningДЇirst, what does EBITDA stand for, and what is it? EBITDA stands for earnings before interest, taxes, depreciation, and amortization.

But, what is EBITDA? What taxes are included in EBITDA? Are payroll taxes included in EBITDA? Grab your pen and paper while we answer these questions and look at what all goes into calculating your businessвЂ™s EBITDA. To calculate the value of your company, you can use a formula called EBITDA. You can use the following Interest Expense Calculator.Owning a business means understanding your companyвЂ™s value. Higher interest costs are always healthy for Lenders as it tends to generate income from the existing Funds landed. For borrowerвЂ™s point of view, higher the interest costs lower the profit as it tends to lower the CompanyвЂ™s Net profit margin. Thus, Interest costs have played a vital role for both the Lender and the borrower.During high inflation, the government hikes interest costs for the banks so that the excess liquidity would get arrested and would result in lower inflation and vice versa. The rate of interests also depends on the Central banks interest rate changes. Again, during swift payment of interest, the borrowers might give a certain rebate in interest rate which actually helps borrowers to pay interest before the time. Thus, the management might talk for a revised rate of interest so as to save their вЂbottom-lineвЂ™. Due to higher Borrowings, some companies might find hard to see profitability due to higher expenses and there is the sinking of margins with profitability.Details of Interest calculations is always required as it might affect their Business negatively or positively depending upon the rate of interest and tenure of the loan. Interest Expense formula is extensively used by the Companies, Firms, Government, Banks and Financial institutions as it is revenue of lender and an expense for the Borrower.Relevance and Uses of Interest Expense Formula The same phenomenon happens with the Financial Institutions or the banks when they lend money to the business. Debenture holdersвЂ™ charges fixed rate of interest and the Business is liable to pay irrespective of loss or profit of the Business. On the other hand, the Debenture holders are willing to invest in the business but with an assurance of guaranteed return. Equity holders are the real owners who are entitled to take risk of the business and their return is not Fixed. Capital can be of two types вЂ“ one is Equity and another is Debt. Business houses need capital to do business. Interest expense is the cost at which the Lender gives money to the required party. Explanation of theВ Interest Expense Formula Interest Expense = INR 88,950 Cr * 5.25% * 1ДЄgain, Loan taken by Tata Motors Ltd.Interest Expense isВ calculated using the formulaВ given below Calculate the total amount of Interest the Company has to pay at the end of March 31 st 2019 if the rate of interest stands 5.25% / annum. On 1 st October the Company has increased its total Borrowings to INR 92,923 Cr. Tata Motors Ltd had total Borrowings (including Long-term and Short-term borrowings) of INR 88,950 Cr on 31 st March 2018. Total amount paid for Interest = INR (18.36+ 10.5) = INR 28.86 Cr. Interest Expense (Short Term) = INR 10.5 Cr.Interest Expense (Short Term) =В INR 105 Cr * 10% * 1.Interest Expense for short term loan isВ calculated using the formulaВ given below Interest Expense (Long Term) = INR 18.36 Cr.Interest Expense (Long Term) =В INR 216 Cr * 8.5% * 1.Interest Expense = Principal Amount (Total Borrowed Amount) * Rate of Interest * Time Period

Interest Expense for long term loan isВ calculated using the formulaВ given below

Calculate the Interest expense on 31 st March. has long term Loan of INR 216 Cr on 31 st March with a simple interest rate of 8.5% per annum and a Short-term loan of INR 105 Cr during that time period with a rate of interest of 10% per annum. Thus, the amount paid by ABC ltd at the end of the year = INR (8,500 + 1,00,000) = INRВ 1,08,500 Interest Expense Formula вЂ“ Example #2 Total amount paid for Interest is INR 8,500

Interest expense formula