Advanced Drainage Systems Inc (WMS)

Based on the provided solvency ratios of Advanced Drainage Systems Inc, we can observe the following trends:

1. Debt-to-assets ratio: The company had a consistently low debt-to-assets ratio of 0.00 across all the years from March 31, 2021, to March 31, 2025. This indicates that the company has very little debt relative to its total assets, suggesting a strong financial position.

2. Debt-to-capital ratio: Similar to the debt-to-assets ratio, the debt-to-capital ratio was also 0.00 for all the years in focus. This metric further reinforces the company's minimal reliance on debt financing in relation to its total capital structure.

3. Debt-to-equity ratio: The debt-to-equity ratio was also consistently 0.00 for the period under review. This implies that the company's level of debt is negligible compared to its equity, reflecting a healthy balance sheet structure.

4. Financial leverage ratio: The financial leverage ratio experienced fluctuations over the years, with values ranging from 2.30 to a significantly higher 39.83. The spike in the financial leverage ratio in March 31, 2025, could indicate a sudden increase in financial risk or leverage undertaken by the company during that period.

Overall, the consistent low debt ratios, coupled with minimal debt levels relative to equity and assets, reflect a robust solvency position for Advanced Drainage Systems Inc. However, the notable increase in the financial leverage ratio in March 31, 2025, would require further investigation to assess the reasons behind this significant fluctuation and its potential impact on the company's financial health.

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Coverage ratios

The interest coverage ratio, which measures a company's ability to meet its interest payments on outstanding debt, indicates Advanced Drainage Systems Inc's financial health over the years.

In March 2021, the interest coverage ratio stood at 9.76, suggesting that the company generated almost 10 times more operating income than the interest expenses incurred during that period, indicating a strong ability to cover interest payments comfortably.

By March 2022, the interest coverage ratio improved to 12.43, reflecting a further increase in the company's ability to cover interest obligations. This suggests that Advanced Drainage Systems Inc's financial position strengthened, indicating enhanced profitability or lower interest expenses.

However, in March 2023, the interest coverage ratio slightly decreased to 10.36 compared to the previous year. While still above 1 (generally considered as a safe threshold), this decline may warrant attention as it indicates a slight reduction in the company's ability to cover interest payments.

By March 2024, the interest coverage ratio fell to 8.50, which is a notable decrease compared to the previous year. This decrease suggests a potential increase in interest expenses or a decrease in operating income, which could signal a higher financial risk for Advanced Drainage Systems Inc.

Surprisingly, in March 2025, the interest coverage ratio dropped to zero, indicating that the company's operating income was insufficient to cover its interest expenses. This could be a red flag for investors and creditors, as a zero or negative interest coverage ratio raises concerns about the company's financial stability and ability to meet debt obligations.

Overall, while Advanced Drainage Systems Inc showed strong interest coverage ratios in the initial years, the significant decline in the later years, culminating in a zero ratio in 2025, suggests a deterioration in its ability to cover interest payments, highlighting potential financial challenges that the company may be facing. This trend warrants further investigation to understand the underlying reasons and assess the company's overall financial health.