RXO Inc. (RXO)
Interest coverage
| Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | ||
|---|---|---|---|---|---|---|
| Earnings before interest and tax (EBIT) | US$ in thousands | -274,000 | 36,000 | 123,000 | 196,000 | 84,000 |
| Interest expense | US$ in thousands | 30,000 | 32,000 | 4,000 | 5,000 | 23,000 |
| Interest coverage | -9.13 | 1.12 | 30.75 | 39.20 | 3.65 |
December 31, 2024 calculation
Interest coverage = EBIT ÷ Interest expense
= $-274,000K ÷ $30,000K
= -9.13
Interest coverage is a crucial financial ratio that indicates a company's ability to meet its interest payment obligations using its operating income. In the case of RXO Inc., the interest coverage ratio has shown significant fluctuations over the past five years.
As of December 31, 2020, RXO Inc. had an interest coverage ratio of 3.65, indicating that the company generated 3.65 times more operating income than the interest expenses it had to pay. This level of coverage suggests a reasonable ability to meet interest obligations.
In the following year, as of December 31, 2021, RXO Inc.'s interest coverage ratio improved significantly to 39.20. This sharp increase indicates a substantial increase in operating income relative to interest expenses, reflecting a very strong ability to cover interest payments.
By December 31, 2022, RXO Inc.'s interest coverage ratio remained high at 30.75, although slightly lower than the previous year. This continued strong coverage indicates that the company is still comfortably able to meet its interest obligations.
However, a notable downturn occurred by December 31, 2023, when RXO Inc.'s interest coverage ratio dropped to a concerning level of 1.12. This sharp decline suggests that the company's operating income may have decreased significantly, raising potential concerns about its ability to cover interest payments.
Furthermore, as of December 31, 2024, RXO Inc.'s interest coverage ratio turned negative to -9.13. A negative interest coverage ratio implies that the company's operating income is insufficient to cover its interest expenses, raising red flags regarding the company's financial health and its ability to service its debt obligations.
In conclusion, while RXO Inc. showed strong interest coverage in the earlier years, the significant decline in the later years, leading to a negative interest coverage ratio, underscores the importance of closely monitoring the company's financial performance and addressing any issues affecting its ability to cover interest payments.
Peer comparison
Dec 31, 2024