Phillips 66 (PSX)

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	10,127,000	14,925,000	2,066,000	-4,590,000	3,883,000
Interest expense	US$ in thousands	882,000	653,000	603,000	635,000	6,000
Interest coverage		11.48	22.86	3.43	-7.23	647.17

December 31, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $10,127,000K ÷ $882,000K
= 11.48

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

In the case of Phillips 66, the interest coverage ratios for the past five years have fluctuated significantly. In 2023, the interest coverage ratio was 11.48, indicating that the company generated sufficient operating income to cover its interest expenses. This ratio decreased from 2022 when it was 24.72, suggesting a decrease in the company's ability to cover its interest payments efficiently.

In 2021, the interest coverage ratio was 6.54, which was lower compared to 2020 when it was negative at -0.62. A negative interest coverage ratio is a red flag indicating that the company's operating income was insufficient to cover its interest expenses. This suggests financial distress or an unsustainable debt burden during that period.

In 2019, the interest coverage ratio was 11.97, showing an improvement compared to 2021 and 2020. This indicates that in 2019, Phillips 66 had a comfortable margin of operating income to cover its interest payments.

Overall, while the interest coverage ratio of Phillips 66 has varied over the years, it is essential to monitor the trend and ensure that the company maintains a healthy ratio to meet its interest obligations and sustain its financial health.