SM Energy Co (SM)

Based on the solvency ratios of SM Energy Co provided for the years 2019 to 2023, we can observe the following trends:

1. Debt-to-assets ratio: This ratio indicates the proportion of a company's assets financed by debt. SM Energy Co's debt-to-assets ratio has been decreasing over the past five years, from 0.43 in 2019 to 0.25 in 2023. This suggests that the company has been relying less on debt to finance its assets, which can be considered a positive trend for solvency.

2. Debt-to-capital ratio: This ratio measures the proportion of a company's capital structure that is funded by debt. SM Energy Co's debt-to-capital ratio has also shown a decreasing trend from 0.50 in 2019 to 0.30 in 2023. A lower debt-to-capital ratio indicates a reduced reliance on debt funding, which can contribute to improved solvency and financial stability.

3. Debt-to-equity ratio: The debt-to-equity ratio reflects the extent to which a company is leveraged by debt relative to its equity. SM Energy Co's debt-to-equity ratio has decreased from 0.99 in 2019 to 0.44 in 2023, signifying a declining leverage position. A lower debt-to-equity ratio indicates a healthier balance between debt and equity financing, which is generally favorable for solvency and risk management.

4. Financial leverage ratio: This ratio evaluates the extent to which a company is using debt to finance its operations. SM Energy Co's financial leverage ratio has decreased steadily from 2.29 in 2019 to 1.76 in 2023. A declining financial leverage ratio indicates that the company is becoming less dependent on debt to support its operations, which can enhance solvency and reduce financial risk.

In summary, based on the trends in these solvency ratios, SM Energy Co has shown a consistent improvement in its debt management and financial leverage over the past five years. The decreasing levels of debt relative to assets, capital, equity, and overall leverage suggest a stronger solvency position and a reduced risk of financial distress.

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Coverage ratios

The interest coverage ratio for SM Energy Co has shown varying trends over the past five years. In 2023 and 2022, the interest coverage ratios were 13.75 and 13.19, respectively, indicating that the company was able to cover its interest expenses comfortably with its operating income. This suggests a strong ability to meet debt obligations through operating earnings.

However, the interest coverage ratios in 2021, 2020, and 2019 were 1.52, -0.32, and -0.23, respectively. These negative ratios indicate that the company's operating income was insufficient to cover its interest expenses during those years. This raises concerns about the company's financial health and ability to meet its debt obligations solely based on operating earnings.

Overall, while SM Energy Co has shown strong interest coverage in recent years, it faced challenges in the past where its operating income was not sufficient to cover its interest expenses. It highlights the importance for the company to maintain a sustainable level of operating income to support its debt obligations in the long term.