Question

Hess Corporation is a global energy company that explores, produces, refines, and markets crude oil and natural gas. The capitalization of interest associated with self-constructed assets was discussed in this chapter. A recent annual report for Hess Corporation disclosed the following information concerning capitalization of interest:
In Note 1:
Capitalized Interest: Interest from external borrowings is capitalized on material projects using the weighted average cost of outstanding borrowings until the project is substantially complete and ready for its intended use, which for oil and gas assets is at first production from the field.

In Note 7:
The Corporation capitalized interest of $13 million, $5 million, and $6 million in 2011, 2010, and 2009, respectively.

Required:
1. Explain why an analyst would calculate the interest coverage ratio.
2. Did Hess include the $13 million capitalized interest in the reported interest expense of $383 million? If not, should an analyst include it when calculating the interest coverage ratio? Explain.



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  • CreatedJuly 01, 2014
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