Finance costs

The Schedule III line that collects the cost of borrowed money: interest on loans and debentures, interest on lease liabilities under Ind AS 116, other borrowing costs such as processing fees spread over a loan's life, and the unwinding of discount on long-dated provisions.

A company whose ₹140 crore of finance costs is ₹112 crore of interest on borrowings, ₹18 crore of lease interest and ₹10 crore of other items has an interest bill on its debt of ₹112 crore. That's the figure to set against average borrowings when estimating what the company pays to borrow.

Two things are missing from the line by design. Interest on loans that fund a plant under construction is capitalised into capital work in progress and never reaches the expense line, so a company in the middle of a large project can show low finance costs and high debt at the same time. And the line says nothing about when the cash left, which the cash flow statement shows separately. An implied rate far below what the company could borrow at is the first sign that interest is being capitalised.

Then read the capitalised interest note.