Sonic Automotive Inc (SAH)

Interest coverage

		Dec 31, 2023	Sep 30, 2023	Jun 30, 2023	Mar 31, 2023	Dec 31, 2022	Sep 30, 2022	Jun 30, 2022	Mar 31, 2022	Dec 31, 2021	Sep 30, 2021	Jun 30, 2021	Mar 31, 2021	Dec 31, 2020	Sep 30, 2020	Jun 30, 2020	Mar 31, 2020	Dec 31, 2019	Sep 30, 2019	Jun 30, 2019	Mar 31, 2019
Earnings before interest and tax (EBIT) (ttm)	US$ in thousands	423,600	178,000	189,500	266,000	314,000	617,800	594,300	604,900	538,400	484,498	455,531	343,675	33,900	20,318	-10,919	-1,490	307,700	274,175	257,116	244,790
Interest expense (ttm)	US$ in thousands	138,500	128,800	122,700	115,100	107,000	94,077	80,994	69,771	58,979	44,156	46,431	47,488	49,246	53,117	55,343	59,176	59,754	1,257	252	-1,340
Interest coverage		3.06	1.38	1.54	2.31	2.93	6.57	7.34	8.67	9.13	10.97	9.81	7.24	0.69	0.38	-0.20	-0.03	5.15	218.12	1,020.30	—

December 31, 2023 calculation

Interest coverage = EBIT (ttm) ÷ Interest expense (ttm)
= $423,600K ÷ $138,500K
= 3.06

The interest coverage ratio measures a company's ability to meet its interest obligations from its operating income. A higher interest coverage ratio indicates that the company is more capable of servicing its debt.

Examining Sonic Automotive, Inc.'s interest coverage over the past eight quarters, we observe a declining trend. In Q4 2022, the interest coverage ratio stood at 5.11 and has decreased steadily to 2.77 in Q4 2023. This drop indicates a potential deterioration in Sonic Automotive's ability to cover its interest expenses with its operating income.

While the ratios for Q1 to Q3 2023 show figures above 3.00, which generally implies that the company can meet its interest payments comfortably, the recent decrease to 2.77 in Q4 2023 could raise concerns about the company's debt servicing capabilities. Investors and creditors may view this declining trend as a red flag, highlighting the importance of monitoring Sonic Automotive's financial performance closely to ensure sustainable debt management.