Smith AO Corporation (AOS)

A.O. Smith Corp.'s solvency ratios demonstrate the company's ability to meet its long-term financial obligations and manage debt. The trends in the ratios over the five-year period provide insights into the company's financial health:

1. Debt-to-assets ratio: This ratio measures the proportion of the company's assets financed by debt. A lower ratio is generally favorable as it indicates lower financial risk. A.O. Smith Corp.'s debt-to-assets ratio has shown a decreasing trend from 2019 to 2023, suggesting effective management of debt levels in relation to its assets.

2. Debt-to-capital ratio: This ratio demonstrates the extent to which a company is reliant on debt to finance its operations. A decreasing trend in this ratio, as observed in A.O. Smith Corp.'s data, reflects a reduction in the company's reliance on debt to fund its operations over the five-year period.

3. Debt-to-equity ratio: The debt-to-equity ratio indicates the degree of financial leverage and risk within a company. A decreasing trend in this ratio, as seen in A.O. Smith Corp.'s data, suggests a decreasing reliance on debt relative to equity, which can be a positive sign of financial stability.

4. Financial leverage ratio: This ratio provides insights into the company's debt levels in relation to its equity. A declining trend in the financial leverage ratio over the five-year period for A.O. Smith Corp. implies a reduction in financial risk and improved financial strength.

Overall, the solvency ratios for A.O. Smith Corp. indicate a prudent approach to managing debt and financial leverage, resulting in improved solvency and financial stability over the five-year period.

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Coverage ratios

The interest coverage ratio for A.O. Smith Corp. has shown a generally healthy trend over the past five years. The company's ability to cover its interest expenses with operating income has been strong, with ratios consistently above 1 indicating that the company has generated more than enough operating income to cover its interest payments.

The trend shows a peak in 2021 with an interest coverage ratio of 141.74, reflecting a robust ability to meet interest obligations. The ratios for 2022 and 2023, although slightly lower, still demonstrate a strong financial position with ratios above 60.

Overall, the consistent high ratios over the years indicate that A.O. Smith Corp. has had a comfortable buffer to cover its interest expenses, suggesting financial stability and a lower risk of defaulting on debt obligations.