PriceSmart Inc (PSMT)

Interest coverage

		Aug 31, 2024	Aug 31, 2023	Aug 31, 2022	Aug 31, 2021	Aug 31, 2020
Earnings before interest and tax (EBIT)	US$ in thousands	220,944	180,176	166,003	154,142	123,498
Interest expense	US$ in thousands	939	11,020	9,611	7,210	7,625
Interest coverage		235.30	16.35	17.27	21.38	16.20

August 31, 2024 calculation

Interest coverage = EBIT ÷ Interest expense
= $220,944K ÷ $939K
= 235.30

The interest coverage ratio measures a company's ability to pay its interest expenses on outstanding debt. A higher ratio indicates that the company is more capable of covering its interest obligations.

Analyzing PriceSmart Inc's interest coverage ratios from 2020 to 2024, we observe that there has been significant variability in the company's ability to cover its interest expenses. In 2020, the interest coverage ratio was 16.20, indicating that the company generated 16.20 times the earnings needed to cover its interest payments.

The interest coverage ratio improved in the following years, reaching 21.38 in 2021, which suggests a stronger ability to meet interest obligations. However, the ratio decreased to 17.27 in 2022 and 16.35 in 2023, indicating a slight weakening in the company's ability to cover interest expenses during these periods.

The most notable change in PriceSmart Inc's interest coverage ratio occurred in 2024, where the ratio significantly increased to 235.30. This substantial increase is likely indicative of a significant improvement in the company's financial performance and its ability to service its debt obligations with ease.

Overall, PriceSmart Inc's interest coverage ratio has shown fluctuations over the five-year period, with a significant improvement in 2024. It is essential for investors and stakeholders to monitor this ratio to assess the company's financial health and its ability to meet interest payments in the future.