interest

1. Finance: Fee paid for using other people's money. To the borrower it is the cost of renting money, to the lender the income from renting (lending) it out. Interest on all debt (called 'cost of debt servicing') is normally deductible before taxes are assessed on a firm's income. Corporate legislation requires disclosure of interest payable on loans, and firms often show a single interest figure in the income statement while providing details in a note (footnote) which may also include netting out of interest received or some other adjustments. In cost accounting, interest is normally excluded from cost computations on the grounds that (being a payment for capital) it is equivalent to dividend, and hence is a finance-item and not a cost-item. The rate of interest is usually expressed as an annual percentage of the principal, and is influenced by the money supply, fiscal policy, amount being borrowed, creditworthiness of the borrower, and rate of inflation. the two types of interest are simple interest and compound interest.

2. Law: Advantage, claim, duty, liability, right, and/or title associated with a tangible or intangible item. Legal claim or right in or over an asset or property is called a security interest. Depending on the situation, holding an interest may also be a qualification (such as the requirement of insurable interest for an insurance policy) or disqualification (such as a direct interest in the subject matter of a court case by anyone acting in a judicial capacity).

In contemplating business mergers and acquisitions, many managers tend to focus on whether the transaction is immediately dilutive or anti-dilutive to earnings per share (or, at financial institutions, to per-share book value). An emphasis of this sort carries great dangers. Going back to our college-education example, imagine that a 25-year-old first-year MBA student is considering merging his future economic interests with those of a 25-year-old day laborer. The MBA student, a non-earner, would find that a "share-for-share" merger of his equity interest in himself with that of the day laborer would enhance his near-term earnings (in a big way!). But what could be sillier for the student than a deal of this kind? In corporate transactions, it's equally silly for the would-be purchaser to focus on current earnings when the prospective acquiree has either different prospects, different amounts of non-operating assets, or a different capital structure.

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