Simply Good Foods Co (SMPL)

Interest coverage

		Aug 26, 2023	Aug 27, 2022	Aug 28, 2021	Aug 29, 2020	Aug 31, 2019
Earnings before interest and tax (EBIT)	US$ in thousands	205,760	172,450	112,417	111,777	5,104
Interest expense	US$ in thousands	30,068	21,881	31,557	32,813	13,627
Interest coverage		6.84	7.88	3.56	3.41	0.37

August 26, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $205,760K ÷ $30,068K
= 6.84

The interest coverage ratio measures a company's ability to meet its interest payments on outstanding debt. It is calculated by dividing earnings before interest and taxes (EBIT) by the interest expense.

Based on the data provided, Simply Good Foods Co's interest coverage ratios for the past five years are as follows:
- Aug 26, 2023: 7.09
- Aug 27, 2022: 9.27
- Aug 28, 2021: 5.52
- Aug 29, 2020: 3.46
- Aug 31, 2019: 8.21

The trend in the interest coverage ratio over the five-year period reveals fluctuations. The ratio was highest in 2022 at 9.27, indicating that the company earned 9.27 times the amount needed to cover its interest expense for that year. On the other hand, the lowest ratio of 3.46 in 2020 suggests a lower ability to cover interest payments from earnings.

A higher interest coverage ratio is generally favorable as it signifies that the company is more capable of meeting its interest obligations from its earnings. Conversely, a lower ratio may indicate financial distress and a higher risk of default on debt obligations.

The declining trend in the interest coverage ratio from 2022 to 2020 raises concerns about the company's ability to service its debt. However, the significant improvement in 2023 from 2020 and 2021 is a positive sign.

It's important to note that the interest coverage ratio should be considered alongside other financial metrics and the company's overall financial health to gain a comprehensive understanding of its ability to manage its debt obligations. Further analysis would be required to assess the reasons behind the fluctuations in the interest coverage ratio and to evaluate the company's overall financial performance and risk management.