CarMax Inc (KMX)

Interest coverage

		Feb 28, 2025	Feb 29, 2024	Feb 28, 2023	Feb 28, 2022	Feb 28, 2021
Earnings before interest and tax (EBIT)	US$ in thousands	777,301	766,345	757,202	1,551,870	1,043,160
Interest expense	US$ in thousands	107,941	840,350	430,698	322,895	86,178
Interest coverage		7.20	0.91	1.76	4.81	12.10

February 28, 2025 calculation

Interest coverage = EBIT ÷ Interest expense
= $777,301K ÷ $107,941K
= 7.20

Interest coverage is a financial ratio that indicates a company's ability to meet its interest obligations on outstanding debt. In the case of CarMax Inc, the trend in interest coverage over the five-year period from February 28, 2021, to February 28, 2025, shows a decline.

Starting at a healthy level of 12.10 in February 2021, CarMax's interest coverage decreased to 4.81 by February 28, 2022. This decline may suggest that the company's ability to cover its interest payments with operating income decreased during this period.

The trend continued as the interest coverage ratio fell further to 1.76 in February 28, 2023, and significantly dropped to 0.91 by February 29, 2024. A ratio below 1 indicates that the company is not generating enough operating income to cover its interest payments, which could raise concerns about its financial stability and ability to service its debt.

However, there was a slight recovery in the interest coverage ratio to 7.20 by February 28, 2025. This improvement indicates that CarMax's ability to cover its interest obligations improved somewhat, but it is still lower compared to the initial levels in 2021.

In conclusion, the declining trend in CarMax's interest coverage ratio over the five-year period raises some concerns about the company's ability to meet its interest payments with its operating income. It is important for investors and analysts to closely monitor this ratio to assess CarMax's financial health and debt servicing capacity.