Interest expense is the cost that a business or individual incurs for borrowing money. This can arise from loans, bonds, or other forms of debt taken to finance operations, acquisitions, or other business activities. For example, if a company borrows $1,000,000 at an annual interest rate of 5%, the annual interest expense would be $50,000.

Interest expense is typically reported on the income statement as a reduction in profit, reflecting the cost of financing. It's important for businesses to monitor and manage interest expenses as they impact cash flow and the overall financial health of the entity. Companies often compare the interest expense to revenue and other financial metrics to assess financial efficiency. This term is also tied to other concepts like debt, financing activities, and income statements.

Managing interest expenses strategically can ensure sustainability and growth for any entity.