Valero Energy Corporation (VLO)

Interest coverage

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Earnings before interest and tax (EBIT)	US$ in thousands	12,046,000	15,518,000	1,788,000	-1,761,000	3,578,000
Interest expense	US$ in thousands	592,000	562,000	603,000	563,000	454,000
Interest coverage		20.35	27.61	2.97	-3.13	7.88

December 31, 2023 calculation

Interest coverage = EBIT ÷ Interest expense
= $12,046,000K ÷ $592,000K
= 20.35

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 a stronger ability to meet interest obligations.

Looking at Valero Energy Corp.'s interest coverage over the past five years, we see a fluctuating trend. In 2023, the interest coverage ratio was 20.03, indicating that the company earned 20 times its interest expenses. This suggests a strong ability to cover interest payments. In 2022, the ratio was even higher at 28.03, further emphasizing the company's robust financial position.

However, in 2021, the interest coverage ratio dropped to 3.53, signaling a potential weakening of the company's ability to cover interest expenses with operating earnings. The ratio turned negative in 2020 at -2.80, implying that the company's EBIT was insufficient to cover its interest charges. This may raise concerns about the company's financial health and its ability to service its debt obligations.

Subsequently, in 2019, the interest coverage ratio rebounded to 8.45, indicating an improvement in the company's ability to cover interest payments compared to the previous year. Overall, Valero Energy Corp.'s interest coverage has been volatile, with periods of strength followed by instances of potential financial stress. Investors and analysts should closely monitor future developments in the company's interest coverage ratio to assess its financial viability.