Talos Energy (TALO)

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	116,248	181,690	495,486	-51,449	-330,607
Interest expense	US$ in thousands	187,638	173,145	125,498	133,138	99,415
Interest coverage		0.62	1.05	3.95	-0.39	-3.33

December 31, 2024 calculation

Interest coverage = EBIT ÷ Interest expense
= $116,248K ÷ $187,638K
= 0.62

Interest coverage is a key financial ratio that indicates a company's ability to pay its interest expenses on outstanding debt. A higher interest coverage ratio is indicative of better financial health and stability.

From the data provided for Talos Energy over the years, we observe a fluctuating trend in the interest coverage ratio. On December 31, 2020, the ratio was -3.33, indicating that the company's operating income was insufficient to cover its interest expenses. This negative ratio suggests that Talos Energy had difficulty meeting its interest obligations with its current level of operating income.

However, there was a notable improvement in the interest coverage ratio over the subsequent years. By December 31, 2022, the ratio had increased to 3.95, indicating that Talos Energy's operating income was almost four times its interest expenses, a positive sign of the company's improved financial position.

Despite the improvement in 2022, the interest coverage ratio decreased to 0.39 by December 31, 2021, then further declined to 1.05 by December 31, 2023, and 0.62 by December 31, 2024. These decreasing ratios suggest that Talos Energy may be facing challenges in meeting its interest obligations with its operating income in those particular years.

In conclusion, it is essential for Talos Energy to sustainably maintain a healthy interest coverage ratio to ensure it has the financial capacity to service its debt obligations and remain financially stable in the long run.