Talos Energy (TALO)

Interest coverage

		Dec 31, 2024	Sep 30, 2024	Jun 30, 2024	Mar 31, 2024	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
Earnings before interest and tax (EBIT) (ttm)	US$ in thousands	110,238	181,179	58,089	71,282	257,179	268,886	517,585	661,915	523,762	610,255	342,947	39,340	-12,068	-517,210	-584,198	-656,297	-322,646	15,188	169,376	458,761
Interest expense (ttm)	US$ in thousands	187,638	190,397	189,759	186,409	173,145	162,817	146,445	131,589	125,498	124,633	127,758	130,552	133,138	123,287	115,021	107,641	99,415	100,738	99,737	98,479
Interest coverage		0.59	0.95	0.31	0.38	1.49	1.65	3.53	5.03	4.17	4.90	2.68	0.30	-0.09	-4.20	-5.08	-6.10	-3.25	0.15	1.70	4.66

December 31, 2024 calculation

Interest coverage = EBIT (ttm) ÷ Interest expense (ttm)
= $110,238K ÷ $187,638K
= 0.59

The interest coverage ratio measures a company's ability to cover its interest expenses with its earnings before interest and taxes (EBIT). A higher ratio indicates the company is more capable of meeting its interest obligations.

Examining Talos Energy's interest coverage over the past few years, we observe significant fluctuations. As of March 31, 2020, the interest coverage stood at a healthy 4.66, indicating the company had sufficient earnings to cover its interest expenses almost five times over.

However, over the subsequent quarters, the interest coverage ratio declined steadily, dropping to 0.15 by September 30, 2020, and even turning negative by December 31, 2020. A negative interest coverage ratio suggests that the company's EBIT is insufficient to cover its interest payments, raising concerns about its financial health and ability to service its debt obligations.

This negative trend persisted into the following year, with consistently low and negative interest coverage ratios recorded up to December 31, 2021. From March 31, 2022 onwards, the interest coverage ratio began to improve, gradually climbing back into positive territory and reaching 5.03 by March 31, 2023.

In the subsequent periods ending December 31, 2024, the interest coverage ratio fluctuated at relatively lower levels between 0.31 and 0.95. This suggests that although there has been some improvement from the earlier negative performances, the company's ability to cover its interest expenses still remains relatively weak.

Overall, Talos Energy's interest coverage ratio has exhibited volatility, with periods of strength followed by significant deterioration and subsequent gradual recovery. It is essential for the company to maintain a healthy interest coverage ratio to ensure financial stability and meet its debt obligations effectively in the long term.