Federal Signal Corporation (FSS)

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	276,400	222,700	160,900	121,200	135,300
Interest expense	US$ in thousands	12,500	19,700	10,300	4,500	5,700
Interest coverage		22.11	11.30	15.62	26.93	23.74

December 31, 2024 calculation

Interest coverage = EBIT ÷ Interest expense
= $276,400K ÷ $12,500K
= 22.11

Federal Signal Corporation's interest coverage ratio has shown fluctuations over the past five years. The interest coverage ratio indicates the company's ability to pay interest expenses on its outstanding debt using its operating income.

At the end of December 31, 2020, the interest coverage ratio was 23.74, indicating that the company generated 23.74 times more operating income than the interest expenses incurred during that period. This high ratio suggests a strong ability to meet its interest obligations comfortably.

By December 31, 2021, the interest coverage ratio further improved to 26.93, reflecting continued financial strength and the ability to cover interest payments nearly 27 times over with operating income.

However, there was a significant decrease in the interest coverage ratio by December 31, 2022, falling to 15.62. This drop may signal a potential strain on the company's ability to cover interest expenses adequately with operating income.

The trend continued downward by December 31, 2023, with the interest coverage ratio decreasing to 11.30. A ratio below 1 indicates that the company's operating income may not be sufficient to cover its interest expenses, raising concerns about its financial health.

The company's interest coverage ratio experienced a recovery by December 31, 2024, increasing to 22.11. While this improvement is positive, it is essential for Federal Signal Corporation to closely monitor and manage its interest expenses relative to its operating income to ensure long-term financial sustainability.