Automatic Data Processing Inc (ADP)

Interest coverage

		Jun 30, 2024	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020
Earnings before interest and tax (EBIT)	US$ in thousands	-8,447,200	4,690,900	3,886,000	3,420,900	3,289,700
Interest expense	US$ in thousands	361,400	253,300	81,900	59,700	107,100
Interest coverage		-23.37	18.52	47.45	57.30	30.72

June 30, 2024 calculation

Interest coverage = EBIT ÷ Interest expense
= $-8,447,200K ÷ $361,400K
= -23.37

The interest coverage ratio for Automatic Data Processing Inc has fluctuated significantly over the past five years, indicating changes in the company's ability to meet its interest payment obligations.

In 2020, the interest coverage ratio stood at 30.72, suggesting that the company's operating income was sufficient to cover its interest expenses 30.72 times over. This indicates a healthy cushion for meeting interest payments.

However, the interest coverage ratio saw a significant decline in 2021 to 57.30, which further decreased to 47.45 in 2022. These high ratios suggest that the company's ability to cover interest expenses increased significantly during these years.

In the most recent years, the trend reversed drastically, as the interest coverage ratio dropped to 18.52 in 2023 and even turned negative to -23.37 in 2024. This negative value indicates that the company's operating income was insufficient to cover its interest expense during the year, raising concerns about its financial health in terms of servicing its debt.

Overall, while the company previously had comfortable interest coverage ratios, the recent sharp decline and negative values highlight potential challenges in meeting interest payment obligations and suggest a need for further analysis to understand the underlying reasons for this deteriorating trend.