Lamb Weston Holdings Inc (LW)

The solvency ratios for Lamb Weston Holdings Inc., based on the provided data, indicate a conservative capital structure with various key metrics reflecting the company's leverage and debt position.

The debt-to-assets ratio, debt-to-capital ratio, and debt-to-equity ratio are all reported as zero across all observed periods (from May 2023 through May 2025). This suggests that the company does not utilize debt financing at these points in time, relying entirely on equity to fund its assets. Such a capital structure implies no leverage from debt, indicating a very strong solvency position and minimal financial risk associated with debt obligations.

In contrast, the financial leverage ratio, which measures the extent of the company's assets financed by equity relative to debt, shows values consistently above 4.0 during the same periods. Specifically, it is 4.62 at the end of May 2023, slightly decreasing to 4.12 by the end of May 2024, and marginally increasing again to 4.25 by May 2025. These figures underscore a high level of assets financed solely through equity, consistent with the zero debt ratios, and imply that the company's asset base is substantially insulated from financial risk arising from external borrowing.

Overall, the analysis indicates that Lamb Weston Holdings Inc. maintains a debt-free or nearly debt-free capital structure during the periods examined. The high financial leverage ratios reflect reliance on equity financing, resulting in low or negligible debt-related solvency risks, and positioning the company as financially stable with minimal concerns about liquidity or debt servicing capacity.

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Coverage ratios

The interest coverage ratios for Lamb Weston Holdings Inc. display considerable variability across the specified periods, indicating fluctuations in the company's ability to meet interest obligations through its earnings before interest and taxes (EBIT).

As of May 28, 2023, the interest coverage ratio stood at approximately 205.14, suggesting an extremely strong capacity to service interest expenses with the available EBIT. This ratio dramatically decreased by May 31, 2023, to approximately 8.08, reflecting a significant reduction in earnings relative to interest obligations, yet still indicating a comfortably manageable interest burden during that period.

Moving forward to May 26, 2024, the interest coverage ratio increased substantially to approximately 236.73, implying a notable improvement in the company's ability to cover interest expenses, possibly due to improved earnings or reduced interest costs. However, by May 31, 2024, the ratio declined sharply to around 7.84, mirroring the downward trend observed earlier but remaining at a level that suggests sufficient earnings to service interest commitments, albeit with less cushion than in previous periods.

Looking ahead to May 31, 2025, the ratio is projected to decrease further to approximately 3.70. This downward trend indicates a potential reduction in the company's relative earnings to interest expenses, which could be due to expected pressures on profitability, increased debt, or other financial factors affecting earnings. Nonetheless, a ratio of 3.70 still demonstrates a reasonable capacity to meet interest obligations, though with diminished safety margins compared to earlier periods.

In summary, Lamb Weston Holdings Inc. has historically maintained very high interest coverage ratios, reflecting strong profitability and low concern over debt servicing. The recent and projected decline in these ratios suggests a trend towards increased financial leverage or reduced earnings, which warrants monitoring. Overall, while current ratios remain at comfortable levels, the downward trajectory highlights the importance of assessing the company's earnings stability and debt management strategies in future periods.