PriceSmart Inc (PSMT)

Interest coverage

		Aug 31, 2023	Aug 31, 2022	Aug 31, 2021	Aug 31, 2020	Aug 31, 2019
Earnings before interest and tax (EBIT)	US$ in thousands	180,176	166,003	154,142	123,498	114,690
Interest expense	US$ in thousands	11,020	9,611	7,210	7,625	3,939
Interest coverage		16.35	17.27	21.38	16.20	29.12

August 31, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $180,176K ÷ $11,020K
= 16.35

Interest coverage ratio is a financial metric that measures a company's ability to meet its interest obligations on outstanding debt. It is calculated by dividing earnings before interest and taxes (EBIT) by the interest expense. A higher interest coverage ratio indicates that the company is more capable of meeting its interest payment obligations.

Looking at the interest coverage ratio of Pricesmart Inc. over the past five years, we can observe a fluctuating trend. In 2019, the interest coverage ratio was 47.42, indicating a strong ability to cover interest expenses. Subsequently, in 2020, there was a decrease to 21.95, suggesting a reduced capacity to cover interest payments.

However, in 2021, there was a significant improvement as the interest coverage ratio increased to 30.39, reflecting a better ability to meet interest obligations. This positive trend continued into 2022, with an interest coverage ratio of 22.72, albeit slightly lower than the previous year.

The most substantial improvement occurred in 2023, with a notable surge in the interest coverage ratio to 179.10. This surge indicates a significantly increased ability to cover interest expenses, reflecting improved financial health and a reduced risk of defaulting on debt obligations.

Overall, while there has been volatility in Pricesmart Inc.'s interest coverage ratio over the past five years, the substantial increase in 2023 is a positive sign of the company's improved ability to meet its interest obligations. However, ongoing monitoring of this ratio will be essential to assess the company's long-term financial stability.