Automatic Data Processing Inc (ADP)

Interest coverage

		Jun 30, 2025	Mar 31, 2025	Dec 31, 2024	Sep 30, 2024	Jun 30, 2024	Mar 31, 2024	Dec 31, 2023	Sep 30, 2023	Jun 30, 2023	Mar 31, 2023	Dec 31, 2022	Sep 30, 2022	Jun 30, 2022	Mar 31, 2022	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020
Earnings before interest and tax (EBIT) (ttm)	US$ in thousands	5,756,800	5,650,300	5,562,900	5,423,200	5,235,800	5,156,700	4,952,000	4,828,800	4,706,300	4,423,800	4,227,300	4,029,200	3,885,500	3,768,800	3,641,800	3,559,800	3,420,800	3,253,400	3,270,400	3,291,000
Interest expense (ttm)	US$ in thousands	452,000	441,500	429,700	407,500	363,500	368,300	345,000	296,000	254,500	174,200	154,300	115,700	83,000	72,500	67,600	63,100	59,700	58,100	64,600	82,300
Interest coverage		12.74	12.80	12.95	13.31	14.40	14.00	14.35	16.31	18.49	25.39	27.40	34.82	46.81	51.98	53.87	56.42	57.30	56.00	50.63	39.99

June 30, 2025 calculation

Interest coverage = EBIT (ttm) ÷ Interest expense (ttm)
= $5,756,800K ÷ $452,000K
= 12.74

The analysis of Automatic Data Processing Inc.'s interest coverage ratio over the provided period indicates a noticeable decline from 2020 through mid-2025.

During the third quarter of 2020, the interest coverage stood at a robust 39.99, reflecting strong ability to meet interest obligations relative to earnings. This ratio increased substantially in the subsequent quarters, reaching a peak of 57.30 in June 2021, which suggests exceptionally comfortable coverage levels during that period. The sustained high ratios through 2020 and the first half of 2021 imply that the company maintained a healthy margin of safety regarding its interest payments.

However, beginning in late 2021 and continuing into 2022 and beyond, the interest coverage ratio exhibits a declining trend. By September 2022, the ratio dropped to 34.82, and further declined to 27.40 by the end of 2022. The downward trajectory persisted into 2023 and the first half of 2024, with ratios of 25.39, 18.49, and ultimately reaching 16.31 in September 2023.

This consistent decrease indicates a reduction in the company's earnings relative to its interest expenses, suggesting increasing leverage or diminishing profitability. The ratio stabilizes somewhat in the latter part of 2024 and into mid-2025, with values around 13.31 to 12.74, yet remains at a level that warrants attention, as it indicates less cushion to cover interest obligations compared to previous periods.

In summary, while Automatic Data Processing Inc. demonstrated high and stable interest coverage ratios through 2020 and early 2021, the declining trend over the subsequent years reflects a potential increase in financial risk. The reduced margins could imply higher leverage or decreased profitability, emphasizing the importance of monitoring the company's ability to sustain its interest coverage levels in future periods.