Semtech Corporation (SMTC)

Interest coverage

		Jan 31, 2025	Jan 31, 2024	Jan 28, 2024	Jan 31, 2023	Jan 29, 2023
Earnings before interest and tax (EBIT)	US$ in thousands	70,900	-935,553	-945,698	93,924	96,370
Interest expense	US$ in thousands	81,353	106,002	95,813	17,646	17,646
Interest coverage		0.87	-8.83	-9.87	5.32	5.46

January 31, 2025 calculation

Interest coverage = EBIT ÷ Interest expense
= $70,900K ÷ $81,353K
= 0.87

Based on the provided data, Semtech Corporation's interest coverage ratio has shown some volatility over the years. In January 2023, the interest coverage ratio was 5.46, indicating that the company generated income 5.46 times greater than its annual interest expenses. This ratio decreased slightly to 5.32 by January 2023.

However, there was a significant decline in the interest coverage ratio in January 2024, with the ratio plummeting to -9.87, and further dropping to -8.83 by the end of that fiscal year. A negative interest coverage ratio typically indicates that a company is unable to meet its interest obligations with its operating income.

By January 31, 2025, the interest coverage ratio improved to 0.87, but it still remains below 1, suggesting that Semtech Corporation's operating income may not be sufficient to cover its interest expenses.

Overall, the trend in Semtech Corporation's interest coverage ratio raises concerns about the company's ability to service its debt obligations from its operating earnings. Further analysis of the company's financial health and debt management practices may be warranted to assess the risks associated with its debt levels.