The Gap, Inc. (GAP)

Interest coverage

		Feb 3, 2024	Jan 28, 2023	Jan 29, 2022	Jan 30, 2021	Feb 1, 2020
Earnings before interest and tax (EBIT)	US$ in thousands	646,000	-51,000	490,000	-910,000	604,000
Interest expense	US$ in thousands	90,000	88,000	167,000	192,000	76,000
Interest coverage		7.18	-0.58	2.93	-4.74	7.95

February 3, 2024 calculation

Interest coverage = EBIT ÷ Interest expense
= $646,000K ÷ $90,000K
= 7.18

The interest coverage ratio for The Gap, Inc. has varied significantly over the past five years. In fiscal year 2020, the company had a strong interest coverage ratio of 7.95, indicating that the company's operating income was sufficient to cover its interest expenses almost 8 times over.

However, in fiscal year 2021, the interest coverage ratio dropped significantly to -4.74, indicating that the company's operating income was not sufficient to cover its interest expenses, resulting in a negative coverage. This could be concerning as it suggests that the company may be struggling to meet its interest obligations from its operating earnings alone.

In fiscal year 2022, the interest coverage ratio improved to 2.93, but it was still lower compared to fiscal year 2020. This improvement suggests that the company's operating income was starting to better cover its interest expenses, although there is room for further improvement.

By fiscal year 2023, the interest coverage ratio turned negative again at -0.58, indicating a deterioration in the company's ability to cover its interest expenses with operating income.

The most recent data for fiscal year 2024 shows an interest coverage ratio of 7.18, which is an improvement from the previous year but still lower than the levels seen in fiscal year 2020.

Overall, the fluctuating trend in The Gap, Inc.'s interest coverage ratio over the years indicates varying levels of financial health and ability to meet interest obligations from operating earnings. It is essential for investors and stakeholders to monitor this ratio closely to assess the company's financial stability and debt repayment capacity.