Financial expenses

Financial expenses (charges financières) encompass all costs related to a company's financing activities: interest on bank loans, bond coupons, finance lease interest, commitment fees, arrangement fees and foreign exchange losses. They appear below EBIT in the income statement and bridge the gap between operating performance and net income. In financial due diligence, their analysis reveals the effective cost of debt, identifies non-arm's length intragroup financing arrangements and measures the company's sensitivity to interest rate movements. In the WACC model, the normalised cost of financial expenses feeds the after-tax cost of debt calculation.

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Example: a Swiss SME with CHF 8.0 million net debt presents financial expenses of CHF 380,000 — implying an average interest rate of 4.75%. The analyst verifies consistency with market rates (3.5–5.0% for this risk profile) and identifies CHF 80,000 of non-recurring arrangement fees from a refinancing in the prior year — excluded from the normalised cost of debt used in the WACC calculation.

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Hectelion analyses financial expenses to construct a normalised cost of debt, integrated into the WACC and DCF valuation model.