NVR Inc (NVR)

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	1,956,110	2,292,720	1,643,520	1,118,900	1,051,180
Interest expense	US$ in thousands	27,740	39,524	53,117	40,872	25,380
Interest coverage		70.52	58.01	30.94	27.38	41.42

December 31, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $1,956,110K ÷ $27,740K
= 70.52

The interest coverage ratio measures a company's ability to cover its interest expenses with its earnings before interest and taxes (EBIT). A higher interest coverage ratio indicates a better ability to meet interest obligations.

Based on the data provided for NVR Inc., we can see a significant fluctuation in the interest coverage ratio over the past five years. In 2019, the interest coverage ratio was quite low at 43.15, implying that NVR Inc. was less capable of servicing its interest payments with its operating income.

However, in the following years, there was a substantial improvement in the interest coverage ratio. In 2020, the ratio increased to 763.40, indicating a significant enhancement in the company's ability to cover its interest expenses. This trend continued with even higher ratios in 2021 and 2022, reaching 1,003.14 and 1,629.03, respectively.

The interest coverage ratio spiked notably in 2022, reflecting a significant increase in NVR Inc.'s operating income relative to its interest expenses. This indicates a robust financial position and a reduced risk of default on interest payments.

In 2023, the interest coverage ratio decreased to 72.75, which is still a healthy level but significantly lower than the peak in 2022. This decline may warrant further analysis to understand the reasons behind it and assess whether it is a temporary fluctuation or a cause for concern.

Overall, the upward trend in NVR Inc.'s interest coverage ratio from 2019 to 2022 signifies improving financial health and capacity to meet interest obligations. However, the decrease in 2023 suggests a potential change in the company's financial dynamics that should be monitored closely.