Fundamental Glossary / Earnings & Accounting Concepts
Finance Costs
The cost of borrowing: interest, and related charges such as fees that are not capitalised.
Formula
Interest expense and similar charges in the P&L. Interest capitalised into an asset is disclosed separately and is not in this expense yet.
What it means
Finance costs are the price of debt. They sit between operating profit and profit before tax.
A rising finance-cost line means more debt, a higher rate, or both. Split the two using the debt note and the average interest rate.
How to read it
Interest cover uses this cost as the denominator. If finance costs are growing faster than EBIT, cover is falling even if the rupee profit is still up.
What to watch
Capitalised interest is a finance cost that has been parked on the balance sheet. It will return as depreciation. Leaving it out understates the true borrowing cost of a project still under construction.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.