AutoNation Inc (AN)

Interest coverage

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Earnings before interest and tax (EBIT)	US$ in thousands	1,651,900	2,024,500	1,902,800	563,200	823,600
Interest expense	US$ in thousands	200,600	150,400	101,800	101,200	116,800
Interest coverage		8.23	13.46	18.69	5.57	7.05

December 31, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $1,651,900K ÷ $200,600K
= 8.23

The interest coverage ratio measures a company's ability to meet its interest obligations on outstanding debt. Autonation Inc.'s interest coverage has shown variability over the past five years, with values of 5.08, 11.56, 15.86, 6.01, and 3.20 for the years ended December 31, 2023, 2022, 2021, 2020, and 2019 respectively.

A higher interest coverage ratio indicates a stronger ability to meet interest payments from operating income. Autonation's interest coverage ratio peaked in 2021 at 15.86, reflecting a substantial increase in operating income relative to interest expenses. This trend demonstrates the company's improving financial health and ability to comfortably cover its interest obligations.

The significant fluctuations in Autonation Inc.'s interest coverage ratio suggest fluctuations in profitability or the cost of debt over the years. Investors and creditors might view the downward trend from 2021 to 2023 with caution, signaling a potential need for closer monitoring of the company's financial performance and debt management strategies to ensure continued sustainability of debt repayment capacity.