Automatic Data Processing Inc (ADP)

Interest coverage

		Jun 30, 2025	Jun 30, 2024	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021
Earnings before interest and tax (EBIT)	US$ in thousands	5,756,000	5,238,100	4,695,300	3,890,400	3,420,900
Interest expense	US$ in thousands	455,900	365,800	257,700	86,300	59,700
Interest coverage		12.63	14.32	18.22	45.08	57.30

June 30, 2025 calculation

Interest coverage = EBIT ÷ Interest expense
= $5,756,000K ÷ $455,900K
= 12.63

The interest coverage ratio of Automatic Data Processing Inc. has demonstrated a notable decline over the observed period from June 30, 2021, to June 30, 2025. Specifically, the ratio was 57.30 in 2021, indicating a robust capacity to cover interest expenses with earnings before interest and taxes (EBIT). This high ratio suggests a strong financial position at that time, with ample earnings to meet interest obligations comfortably.

By June 30, 2022, the ratio decreased significantly to 45.08, still reflecting a strong ability to cover interest payments, albeit with a noticeable reduction from the previous year. This decline may indicate increasing interest expenses, decreasing earnings, or a combination of both, but the ratio remains well above typical safety thresholds.

The downward trend continued markedly by June 30, 2023, with the ratio dropping to 18.22. Although still above commonly accepted minimums (which often range around 3 times), this sharp decrease signals a substantial reduction in coverage capacity. It could highlight rising debt levels, reduced profitability, or both, thereby raising some concerns about the company’s short-term financial resilience in meeting interest obligations.

Further reductions are observed in subsequent years, with the ratio dipping to 14.32 on June 30, 2024, and then to 12.63 on June 30, 2025. While these figures still suggest that the company retains the ability to cover interest expenses multiple times over, the declining trend indicates increasing financial leverage or decreasing earnings, which might warrant ongoing monitoring.

Overall, the data illustrates a significant erosion of Automatic Data Processing Inc.'s interest coverage over the analyzed period, transitioning from an exceptionally strong position in 2021 to a more moderate but still positive coverage in 2025. This trend emphasizes potential pressures on the company's profitability or changes in its debt structure that could impact its financial stability if the trend persists.