DigitalOcean Holdings Inc (DOCN)

Interest coverage

		Dec 31, 2024	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021
Earnings before interest and tax (EBIT)	US$ in thousands	91,007	35,721	-14,730	-14,457
Interest expense	US$ in thousands	9,113	8,945	8,396	3,744
Interest coverage		9.99	3.99	-1.75	-3.86

December 31, 2024 calculation

Interest coverage = EBIT ÷ Interest expense
= $91,007K ÷ $9,113K
= 9.99

DigitalOcean Holdings Inc's interest coverage has fluctuated significantly over the years. As of December 31, 2021, the interest coverage ratio was notably weak at -3.86, indicating that the company's operating income was insufficient to cover its interest expenses. This raised concerns about the company's ability to meet its debt obligations using its current earnings.

By the end of December 31, 2022, the interest coverage ratio deteriorated further to -1.75, suggesting a worsening financial position with even greater difficulty in servicing its interest payments. This continued downward trend was alarming.

However, there was a significant improvement in the interest coverage ratio as of December 31, 2023, reaching 3.99. This change indicated that DigitalOcean's operating income had become more robust relative to its interest expenses. It reflected a more favorable financial position, with a greater ability to meet its debt obligations through earnings.

As of December 31, 2024, the interest coverage ratio surged to 9.99, signaling a substantial strengthening of the company's ability to cover interest expenses. This ratio further demonstrated that DigitalOcean had significantly enhanced its financial health and reduced the risk associated with its debt obligations.

Overall, DigitalOcean Holdings Inc's interest coverage has shown a remarkable turnaround from severe weakness to a strong position, suggesting improved financial stability and a reduced risk of default on interest payments. This positive trend signifies a positive trajectory for the company's financial performance.