Novice :: Need help in understanding few screener cons

Q&A: Questions & Answers Investing Basics Q&A
1

Hello Members,

Must appreciate the creators and highly cooperative members of this forum. This platform is providing so much useful and practical information to people like me who is struggling to learn about investment.

I have started using screener.in and found few financial jargon which I am not able to understand.
PFB few cons

  1. Company might be capitalizing the interest cost.
  2. Earnings include an other income of Rs.XXXXXX Cr.
  3. Company has low interest coverage ratio.

Can any one please help me in explaining what does this mean.

Thanks in advance,
Sunny

2

It can be explained through an example. A pharma company has been started constructing a factory building from 2014 which was funded by term loan. The construction activity expected to be completed by 2016. The building has completed to the extent of 30% . Company can’t capitalize the building til completion. Bankers started charging interest on the term loan. The interest cost for accounting will added to the cost of the building. This is called Capitalization of interest cost.

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3

It can be explained through an example. A pharma company has been started constructing a factory building from 2014 which was funded by term loan. The construction activity expected to be completed by 2016. The building has completed to the extent of 30% at end FY 2014-15 . Company can’t capitalize the building til completion. Bankers started charging interest on the term loan. The interest cost for accounting will added to the cost of the building. This is called Capitalization of interest cost.
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4

Thanks Vijay for the quick explanation.

Just want to understand how is it a negative since any ways if company has taken loans it has to pay interest. Sorry may be asking a very silly question.

Also , in terms of real example , can you throw some light on ONGC https://www.screener.in/company/?q=500312&con=1#pl. How is ONGC capitalizing interest the interest cost.

Thanks
Sunny

5

ONGC loan Rs.45,588 crores and interest cost Rs.624 crores as at Mar’14. None of banks and financial institutions lend below 10% at least in India. Interest expenses represents mere 1.37% of borrowing outstanding Mar’14. I trust you could have got some idea. Screener.in has some logic behind “company capitalizing interest cost”. please check with architects of screener.in further details.

6

This makes business look better than what it is, as you don’t show the interest outgo as expense

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7

Pro & Cons are just indicators of the possible positive or negatives in the company. After reading them one should work on and try to understand if the same is right or not.

Regards,
Ayush