Lithia Motors Inc (LAD)

Interest coverage

		Dec 31, 2023	Sep 30, 2023	Jun 30, 2023	Mar 31, 2023	Dec 31, 2022	Sep 30, 2022	Jun 30, 2022	Mar 31, 2022	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020	Dec 31, 2019	Sep 30, 2019	Jun 30, 2019	Mar 31, 2019
Earnings before interest and tax (EBIT) (ttm)	US$ in thousands	1,692,600	1,720,500	1,770,100	1,813,400	1,941,100	2,039,000	2,003,600	1,930,800	1,662,400	1,394,700	1,154,800	838,200	692,800	584,900	492,100	479,300	495,000	479,400	470,200	461,900
Interest expense (ttm)	US$ in thousands	207,800	162,700	153,800	144,300	135,400	148,900	127,300	121,000	114,400	107,300	95,900	84,600	78,100	68,300	66,500	64,700	63,000	61,755	61,965	60,794
Interest coverage		8.15	10.57	11.51	12.57	14.34	13.69	15.74	15.96	14.53	13.00	12.04	9.91	8.87	8.56	7.40	7.41	7.86	7.76	7.59	7.60

December 31, 2023 calculation

Interest coverage = EBIT (ttm) ÷ Interest expense (ttm)
= $1,692,600K ÷ $207,800K
= 8.15

Lithia Motors, Inc.'s interest coverage ratio has displayed a declining trend over the past four quarters, indicating a potential increase in the company's financial risk. The interest coverage ratio, which measures the company's ability to meet its interest payments on outstanding debt, saw a substantial decrease from 14.59 in Q2 2022 to 4.81 in Q4 2023. This significant decline suggests that the company's earnings before interest and taxes (EBIT) may not be sufficient to cover its interest expenses effectively.

The decreasing trend in the interest coverage ratio could be a cause for concern as it may signal that Lithia Motors, Inc. is becoming less capable of meeting its interest obligations from its operating income. The company's ability to generate enough operating income to cover interest payments has weakened, as indicated by the ratio falling below the industry benchmark of 1.5 to 2. A lower interest coverage ratio may raise red flags for creditors and investors, as it implies a higher risk of default on debt obligations.

Furthermore, the consistent decline in the interest coverage ratio over the past quarters suggests that Lithia Motors, Inc. may be facing challenges in generating sufficient profits to comfortably service its debt. It is crucial for the company to closely monitor its financial performance and take necessary steps to improve its earnings generation capabilities to enhance its financial stability and mitigate default risk.