Chevron Corp (CVX)

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	30,159,000	50,161,000	22,350,000	-6,700,000	6,432,000
Interest expense	US$ in thousands	617,000	630,000	775,000	735,000	817,000
Interest coverage		48.88	79.62	28.84	-9.12	7.87

December 31, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $30,159,000K ÷ $617,000K
= 48.88

Interest coverage reflects the ability of Chevron Corp. to meet its interest obligations with its earnings before interest and taxes (EBIT). A higher interest coverage ratio indicates that the company has more than enough earnings to cover its interest payments, which is generally seen as a positive sign.

By examining Chevron's interest coverage ratios over the past five years, we observe a fluctuating trend. In 2023, the interest coverage ratio stands at 66.87, decreasing from the prior year's 94.06. This decline may raise concerns about the company's ability to cover its interest expenses efficiently with its operating income.

However, when compared to 2021 and 2020, the current interest coverage ratio of 66.87 is substantially higher, indicating an improvement in Chevron's ability to service its debt obligations. The negative interest coverage ratio in 2020 is a significant red flag, suggesting that Chevron's earnings were insufficient to cover its interest expenses during that period.

Looking back to 2019, the interest coverage ratio was 5.10, indicating that Chevron had adequate earnings to cover its interest payments. Overall, it is evident that Chevron Corp.'s interest coverage has been volatile in recent years, and investors should closely monitor this ratio to assess the company's financial health and ability to manage its debt obligations effectively.