CompanyGraph
Captures earnings from cash deposits and interest-bearing holdings, exposing the return the company generates from its liquid reserves.
Interest income is earnings from cash deposits, bonds, or other interest-bearing assets. It is reported on the income statement as non-operating income.
Interest income represents earnings from a company's cash holdings, short-term investments, and loans made to others. This non-operating income appears below operating income on the income statement and reflects returns on the company's liquid assets. While typically a smaller component of total income for non-financial companies, interest income can be significant for cash-rich businesses.
Sources of interest income:
- Bank deposits: Interest on checking, savings, and money market accounts
- Treasury securities: Returns on government bonds and bills
- Corporate bonds: Interest from fixed-income investments
- Certificates of deposit: Returns on time deposits
- Customer financing: Interest on loans to customers (e.g., equipment financing)
- Intercompany loans: Interest on loans to subsidiaries or affiliates
Why interest income matters:
- Cash management: Indicates how well excess cash is deployed
- Net interest calculation: Interest income minus interest expense shows financing impact
- Capital efficiency: High cash balances earning low returns may indicate inefficiency
- Financial flexibility: Significant interest income suggests substantial liquid assets
Analysing interest income:
- Yield calculation: Interest income / Average cash and investments = Effective yield
- Interest rate sensitivity: Income changes with prevailing interest rates
- Trend analysis: Changes reflect cash position and rate environment
- Peer comparison: Relative to cash holdings and industry norms
Net interest position:
Net Interest = Interest Income - Interest Expense
- Positive net interest: Interest income exceeds expense; net cash position
- Negative net interest: Interest expense exceeds income; net debt position
Industry context:
- Technology companies: Often significant interest income from large cash balances
- Financial services: Interest income is core to the business model
- Industrial companies: Usually modest interest income
Interest income is generally stable and low-risk but provides modest returns. Companies with large cash hoards earning minimal interest may face pressure to deploy capital more productively through investments, acquisitions, or shareholder returns.