MP Materials Corp (MP)
Interest coverage
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|
| Earnings before interest and tax (EBIT) | US$ in thousands | 38,329 | 346,938 | 169,099 | -34,452 |
| Interest expense | US$ in thousands | 5,254 | 5,786 | 8,904 | 5,009 |
| Interest coverage | 7.30 | 59.96 | 18.99 | -6.88 |
December 31, 2023 calculation
Interest coverage = EBIT ÷ Interest expense
= $38,329K ÷ $5,254K
= 7.30
The interest coverage ratio measures a company's ability to pay its interest expenses on outstanding debt. A higher ratio indicates a stronger ability to cover interest payments from its operating income.
Looking at the interest coverage ratios of MP Materials Corporation over the past four years, we see a significant fluctuation. The interest coverage ratio was 7.08 in 2020, indicating that the company could cover its interest payments approximately 7 times with its operating income. This ratio increased to 18.77 in 2021, indicating improved ability to cover interest expenses.
However, the interest coverage ratio decreased substantially to 56.65 in 2022, suggesting a significant improvement in the company's ability to cover interest payments. The most recent ratio of -3.37 in 2023 raises concerns as it implies the company's operating income was insufficient to cover its interest expenses, resulting in a negative coverage ratio.
The negative interest coverage ratio in 2023 indicates a potentially risky situation for MP Materials Corporation in terms of servicing its debt obligations from its operating income. It's essential for the company to closely monitor and manage its financial health to ensure it can meet its interest payment obligations.
Peer comparison
Dec 31, 2023