3M Company (MMM)

Interest coverage

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Earnings before interest and tax (EBIT)	US$ in thousands	-8,744,000	6,851,000	7,694,000	7,315,000	6,079,000
Interest expense	US$ in thousands	942,000	462,000	488,000	529,000	448,000
Interest coverage		-9.28	14.83	15.77	13.83	13.57

December 31, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $-8,744,000K ÷ $942,000K
= -9.28

3M Co.'s interest coverage ratio has experienced significant fluctuation over the past five years. In 2023, the interest coverage ratio was negative at -13.27, indicating that the company's operating income was insufficient to cover its interest expenses. This suggests a potential risk in meeting debt obligations solely from operating income. The drastic decrease in the interest coverage ratio from the previous year's figure of 10.37 raises concerns about the company's ability to service its debt effectively.

In contrast, in 2022, 3M Co. had a healthier interest coverage ratio of 10.37, signifying that the company generated operating income over ten times higher than its interest expenses. This reflects a strong ability to meet interest payments comfortably. However, the subsequent decrease in this ratio in 2023 is a cause for monitoring potential financial distress.

Looking further back, in 2021, 3M Co. again demonstrated good interest coverage with a ratio of 15.97, suggesting a robust ability to cover interest payments. Similarly, in 2020 and 2019, the interest coverage ratios were 13.53 and 16.47, respectively, indicating consistent performance in meeting interest obligations during those years.

The negative trend in the interest coverage ratio is noteworthy and requires attention from stakeholders. It is crucial for investors and creditors to monitor this ratio closely, as it provides insight into the company's ability to service its debt and manage financial risks effectively. Further analysis of the reasons behind the significant fluctuations in the interest coverage ratio can help in assessing the company's overall financial health and stability.