The Gap, Inc. (GAP)

The solvency ratios of The Gap, Inc. provide insights into the company's ability to meet its long-term financial obligations and manage its debt effectively.

1. Debt-to-assets ratio: This ratio indicates the proportion of the company's assets financed by debt. The trend shows that The Gap's debt level relative to its assets has remained relatively stable over the analyzed period, ranging from 0.10 to 0.16. A lower ratio suggests that the company relies less on debt to fund its operations and investments.

2. Debt-to-capital ratio: This ratio evaluates the percentage of the company's capital structure that is funded by debt. The Gap has shown a decreasing trend in this ratio, indicating a reduction in its reliance on debt financing. The ratio decreased from 0.50 in August 2020 to 0.31 in February 2025, highlighting an improvement in the company's capital structure.

3. Debt-to-equity ratio: This ratio compares the company's total debt to its shareholder equity, reflecting the level of financial leverage. The Gap's debt-to-equity ratio has generally decreased over the analyzed period, indicating that the company has been reducing its reliance on debt financing in favor of equity.

4. Financial leverage ratio: This ratio measures the company's total assets relative to its equity, providing insights into how effectively the company is using debt to finance its operations. The downward trend in The Gap's financial leverage ratio suggests that the company has been managing its debt levels more efficiently over time, leading to a stronger financial position.

Overall, the solvency ratios of The Gap, Inc. demonstrate consistent efforts to manage its debt levels and improve its financial structure, enhancing the company's long-term solvency and stability.

---

Coverage ratios

The interest coverage ratio for The Gap, Inc. shows a significant improvement from negative values in 2020 and early 2021 to positive figures in 2021 and onwards. This indicates that the company's ability to meet its interest obligations has strengthened over time. The ratio has shown a steady increase, reaching its peak at 14.07 on February 1, 2025, which reflects the company's enhanced capacity to cover its interest expenses with its operating earnings.

It is worth noting that during the period between May 2, 2020, and January 29, 2022, The Gap, Inc. faced challenges in covering its interest payments, as evidenced by the consistently negative interest coverage ratios. However, starting from May 1, 2021, the company managed to turn around its financial position, showing positive interest coverage ratios.

The positive trend in the interest coverage ratio indicates that The Gap, Inc. has been able to generate sufficient earnings to comfortably cover its interest payments in recent periods. This improvement suggests a positive outlook for the company's financial health and ability to manage its debt obligations effectively.