The Next Metric: Interest Expense Per Share

As global companies continue to navigate the tumultuous financial waters of the 2023 and 2024, investors are seeking more transparent and relatable metrics to understand the intricate fabric of corporate financial health. In the anticipation of the re-pricing of fixed-rate debt post-2023, in an environment when there could be multiple hundred of basis point impact on a public companies longer term debt expense vs. prior, it is going to be critical to provide a simple metric for investors to understand the puts and takes across the debt portfolio that they can use to understand both the change and the future.

Interest expense per share can be that metric.

What is Interest Expense Per Share?

At its core, interest expense per share divides a company's total interest expenses (associated with its debt) by the total number of outstanding shares providing a simple way to understand aggregate year over year changes.

Benefits of Interest Rate Per Share

1. Transparency on Debt Servicing:?By understanding the interest expense on a per-share basis, investors can gauge how well a company can service its debt relative to its equity size. This is particularly important for companies that are heavily leveraged and want to be able to engage with investors on this topic in an easy way to outline the changes and the future.
2. Comparison Across Peers:?When comparing companies in the same industry, this metric can highlight which firms have a more sustainable debt structure and lead to higher valuations.?
3. Cost Management Insights:?Reinforces to investors the company is managing its debt and overall capital structure effectively improving investor sentiment.

Why Interest Expense Per Share Matters

1. Direct Relation to Earnings:?A company's earnings profile is directly impacted by its interest expense. By understanding the interest expense on a per-share basis, investors can gauge how potential re-pricings might influence future profitability and earnings per share (EPS). Given the potential puts and takes of a change in long term, short term and mix of debt it is critical to make to clear what changed and why.
2. Debt Leverage Clarity:?This metric offers insights into a company's leverage strategy. A higher interest expense per share could indicate a higher reliance on debt financing. When juxtaposed with the anticipated re-pricing, investors can understand how leverage strategies might evolve and engage with the company to understand the thinking about the strategic trajectory and capital structure.
3. Informed Forecasting:?Investors can make more nuanced forecasts of a company's future earnings, especially when contemplating potential shifts in interest rates and subsequent debt re-pricing, potentially elevating valuation.
4. Holistic Risk Assessment:?Beyond just understanding the earnings, interest expense per share can help investors understand the risk profile the company.
5. Shareholder Communication: Companies that proactively communicate their interest expense per share, and its potential trajectory, can foster trust and transparency with their stakeholders, making them more attractive investment prospects.

Investor Questions:

1. How is the company planning for the repricing of its debt in response to changing market conditions in 2024?
2. What is the company's strategy for balancing short-term and long-term debt in 2024?
3. How does the debt repricing strategy align with the company's overall financial goals and growth plans in 2024 and what is your view of how the latter half of the year will impact this?
4. What are the company's expectations for interest rate movements and how will this impact interest expenses in 2024 by quarter and in 2025?
5. How does the interest expense per share compare to earnings per share, and what trends are emerging?
6. Are there immediate plans for refinancing or debt restructuring if interest rates move lower than expected, earlier in 2024?
7. What safeguards does the company have in place to mitigate the risks associated with its debt repricing strategy and drive margin resiliency?
8. Are there any covenants or conditions tied to the debt that we should be aware of?
9. How does the company's debt strategy align with industry benchmarks and best practices? Are you taking a different position than peers?
10. What are the potential implications for dividend payments or share buybacks given the company's interest expense per share and the magnitude of those changes?

The evolving economic landscape post-2023 underscores the importance of agile financial metrics. Interest expense per share stands out as a potential new tool, bridging the gap between debt re-pricing and impact on a company's earnings profile. By incorporating this metric into their analysis, investors can navigate the uncertainties of the future with greater confidence and clarity and companies can get credit for transparency, partnership and impactful strategic capital structure management.