Dorman Products Inc (DORM)

Interest coverage

		Dec 31, 2024	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020
Earnings before interest and tax (EBIT)	US$ in thousands	295,979	216,564	230,984	186,622	103,373
Interest expense	US$ in thousands	39,727	48,061	15,582	2,162	599
Interest coverage		7.45	4.51	14.82	86.32	172.58

December 31, 2024 calculation

Interest coverage = EBIT ÷ Interest expense
= $295,979K ÷ $39,727K
= 7.45

The interest coverage ratio measures a company's ability to meet its interest payments on outstanding debt. In the case of Dorman Products Inc, the interest coverage has shown a significant decline over the years. As of December 31, 2020, the interest coverage ratio was strong at 172.58, indicating the company had significantly more operating income to cover its interest expenses.

However, there has been a notable decrease in the interest coverage ratio in the subsequent years. By December 31, 2021, the ratio had dropped to 86.32, still indicating the company's ability to cover its interest payments, but at a lower level compared to the previous year. This decline continued in the following years, with the interest coverage ratios falling to 14.82 by December 31, 2022, 4.51 by December 31, 2023, and then slightly improving to 7.45 by December 31, 2024.

The decreasing trend in the interest coverage ratio raises concerns about Dorman Products Inc's ability to comfortably meet its interest obligations as its operating income may not be sufficient to cover its interest expenses in the future. The company should closely monitor its financial performance and consider strategies to improve its interest coverage ratio to ensure financial stability and debt repayment capacity.