Definition
Interest expense is the cost of debt over a period (meaning cash interest plus any amortized fees).
Formula
Interest expense = average debt balance * interest rate
Example
Average debt $1M at 8% implies $80k annual interest expense.
How to use it
- Separate cash interest from non-cash amortization for runway planning.
- Model variable-rate debt with rate scenarios, not a single point.
Common mistakes
- Using ending balance instead of average balance for the period.
- Ignoring refinancing risk when interest rates are rising.
Measured as
Interest expense = average debt balance * interest rate
Misused when
- Using ending balance instead of average balance for the period.
- Ignoring refinancing risk when interest rates are rising.
Operator takeaway
- Separate cash interest from non-cash amortization for runway planning.
- Model variable-rate debt with rate scenarios, not a single point.
- Tie Interest Expense to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Quantify the impact with Loan Payment Calculator if you need to turn the definition into an operating assumption.
- Read Interest expense: definition, formula, and how to calculate if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
Where to use this on MetricKit
Calculators
- Loan Payment Calculator: Compute monthly payment, total interest, and total paid for a loan using amortization.
Guides
- Interest expense: definition, formula, and how to calculate: Interest expense explained: what it is, the formula, how to calculate it, and how net interest expense works.