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An Investor’s Guide to Celanese’s Leverage

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Part 2
An Investor’s Guide to Celanese’s Leverage PART 2 OF 5

What Celanese’s Interest Coverage Ratio Can Tell You

Celanese’s interest expense

Celanese’s (CE) interest expense has been on a declining trend despite a marginal increase in debt. In 2012, CE’s interest expense was $185.0 million and had gradually declined to $120.0 million in 2016.

At the end of 2Q17, CE’s interest expense was $59.0 million. The decline in its interest expense was primarily due to the refinancing of its debt, which carried a higher coupon rate.

What Celanese’s Interest Coverage Ratio Can Tell You

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Another reason for the reduction in the company’s interest expense is that in 2014, Celanese (CE) redeemed $600.0 million in senior notes due in 2018 carrying a coupon rate of 6.625%. The reduction in interest expenses has helped CE improve its net income.

Interest coverage ratio

The interest coverage ratio indicates how efficiently a company can service its debt. We can calculate this ratio by using a company’s EBIT (earnings before interest and taxes) divided by interest expense. The higher the multiple, the better it is for the company.

At the end of 2Q17, CE’s interest coverage ratio stood at ~9.8x. CE’s peers Westlake Chemical (WLK), Eastman Chemical (EMN), and Huntsman (HUN) have interest coverage ratios of ~16.2x, ~5.7x, and ~4.6x, respectively. With the exception of HUN, CE’s interest coverage ratio was better than its peers. In 2012, Celanese’s interest coverage ratio was ~2.7x.

The increase in the company’s interest coverage ratio was primarily due to an increase in EBIT and a decline in its interest expense.

Investors looking to invest in Celanese indirectly can consider the Guggenheim Insider Sentiment ETF (NFO). NFO invested 1.1% of its portfolio in CE on September 27, 2017.

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