American Water Works (AWK)
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 | 1,504,000 | 1,273,000 | 1,196,000 | 1,248,000 | 1,214,000 |
| Interest expense | US$ in thousands | 460,000 | 433,000 | 403,000 | 408,000 | 399,000 |
| Interest coverage | 3.27 | 2.94 | 2.97 | 3.06 | 3.04 |
December 31, 2023 calculation
Interest coverage = EBIT ÷ Interest expense
= $1,504,000K ÷ $460,000K
= 3.27
The interest coverage ratio measures a company's ability to meet its interest expense obligations with its operating income. American Water Works Co. Inc. has shown a consistent improvement in its interest coverage ratio over the past five years.
In 2023, the interest coverage ratio reached 3.89, indicating that the company's operating income was nearly four times the amount needed to cover its interest expenses. This represents a positive trend compared to the previous years, with the ratios being 3.34 in 2022, 3.00 in 2021, 3.16 in 2020, and 3.15 in 2019.
The increasing trend in the interest coverage ratio suggests that American Water Works Co. Inc. has been effectively managing its interest expenses relative to its operating income. A higher interest coverage ratio signifies a lower financial risk for creditors and investors, as the company has sufficient earnings to cover its interest obligations comfortably.
Overall, the consistent improvement in the interest coverage ratio reflects positively on American Water Works Co. Inc.'s financial health and ability to meet its debt obligations with its operating income.
Peer comparison
Dec 31, 2023