Operating model
Debt schedule and interest
Roll forward debt, charge interest on the average balance and track credit metrics.
30 minintermediateMembers
Learning objectives
- Roll forward a debt balance with drawdowns and repayments
- Calculate interest on the average balance and explain when that creates circularity
- Calculate interest cover and leverage from the schedule
Lenders read a model from the debt schedule outwards: can the company pay the interest, and repay on schedule? Rawdah Home Retail Co. ended FY2025 with debt of 355.0, up from 260.0 three years earlier. The schedule tracks each year's balance, feeds interest expense to the income statement, repayments and drawdowns to the cash flow, and closing debt to the balance sheet.
Closing = Opening + Drawdowns − Repayments · Interest = Average(opening, closing) × rate
- Repayments
- scheduled amortization, capped at what is outstanding: MIN(scheduled, opening + drawdowns)
- Average balance
- approximates debt outstanding through the year when it changes
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The rest of this lesson is for members. Members get the full lesson, including its 3 graded exercises, and every other Finance Quest lesson.