What is STEM HLDGS INC's earnings per share (EPS)?

STEM HLDGS INC (STMH) reported diluted earnings per share of -$7.67 for fiscal year 2023. This represents a 1.0% change compared to the previous fiscal year. EPS represents the portion of a company's net income allocated to each outstanding share of common stock and is widely used to evaluate profitability on a per-share basis.

STEM HLDGS INC (STMH) Financials

STMH

FY2023 annual

Revenue Not reported for FY2023

Net Income -$19.0M -9.5% YoY

EPS (Diluted) -$7.67 +1.0% YoY

Operating Cash Flow -$1.2M +75.0% YoY

Source SEC Filings (10-K/10-Q) Latest period FY2023, ended Sep 30, 2023 Reported May 24, 2024 Currency USD FYE September

Newest figures come from the 10-K for FY2023, filed May 24, 2024. Each column of the statement tables below links to the filing it was taken from.

This page shows STEM HLDGS INC (STMH) financial statements, including the income statement, balance sheet, cash flow statement, and key financial ratios. View 7 years of annual fundamentals and quarterly data, with year-over-year growth rates and compound annual growth rates (CAGR). All figures are derived from SEC filings (10-K and 10-Q reports).

Rhea AI STMH FY2023 2026-08-30

Stem Holdings’ financing-dependent cash profile is paired with deteriorating asset coverage and equity through FY2023.

From FY2022 to FY2023, net loss deepened while operating cash flow improved from -$4.9M to -$1.2M. The opposing directions—despite FY2023 net loss of -$19.0M—make accounting earnings a poor proxy for cash use, while financing inflow of $1.2M nearly offset that year’s operating outflow.

Equity shifted from $15.6M in FY2022 to -$1.7M in FY2023, while liabilities exceeded assets; this is a structural solvency deterioration, not merely a margin issue. A current ratio just below 1.0x also indicates that current obligations slightly exceeded current resources at year-end.

FY2023 financing cash flow of $1.2M nearly matched operating cash use, while FY2022 financing cash flow was negative; this points to external funding supporting cash needs rather than internally generated cash. At FY2023 year-end, reported cash, equivalents, and investments equaled 9.3 months of that year’s operating outflow, a point-in-time comparison rather than proof of recurring self-funding.

Financial Health Signals

Financial health score not available

STEM HLDGS INC does not currently provide enough eligible data for a peer-relative financial health score, so none is published. The signals and metrics below are current.

Piotroski F-Score Partial

1/6

STEM HLDGS INC passes 1 of 6 computable financial strength tests (3 of the nine could not be computed from available data). 1 of 4 profitability signals pass, no leverage/liquidity signals pass (rising debt, declining liquidity, or share dilution).

Earnings Quality No Cash Backing

N/A

STEM HLDGS INC reported a net loss of $19.0M while operations used $1.2M of cash. With neither figure positive, the ratio between the two carries no quality signal.

Interest Coverage At Risk

N/A

STEM HLDGS INC reported an operating loss of $3.7M against $1.2M in interest expense. There is no operating profit to cover interest, so interest must be met from cash reserves or from financing rather than from operations.

Key Financial Metrics

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Earnings & Revenue

EPS (Diluted)

-$7.64

YoY+1.0%

STEM HLDGS INC earned -$7.64 per diluted share (EPS) in Q4 2023. This represents an increase of 1.0% from the same quarter a year earlier.

Revenue

Not reported for Q4 2023.

EBITDA

Not reported for Q4 2023.

Net Income

Not reported for Q4 2023.

Cash & Balance Sheet

Cash & Debt

$961K

YoY-36.9%

QoQ-43.6%

5Y CAGR+4.8%

STEM HLDGS INC held $961K in cash against $1.1M in long-term debt as of Q4 2023, with $14.0M of liabilities due within a year.

Free Cash Flow

Not reported for Q4 2023.

Dividends Per Share

Not reported for Q4 2023.

Shares Outstanding

Not reported for Q4 2023.

Margins & Returns

None of these metrics is reported for Q4 2023.

Capital Allocation

None of these metrics is reported for Q4 2023.

STMH Income Statement

Figures in USD, abbreviated K (thousand), M (million), B (billion), T (trillion). Negative values carry a minus sign and red type. Each change compares the year with the year before it, and each quarter with the same quarter a year earlier.

STMH quarterly income statement

Metric	FY2310-K	FY2210-K	FY2110-K	FY2010-K	FY1910-K	FY1810-K	FY1710-K
Revenue	N/A	$19.3M-21.0%	$24.4M+74.7%	$14.0M+470.1%	$2.5M+89.1%	$1.3M+297.5%	$326K
Cost of Revenue	N/A	$14.4M+0.4%	$14.4M+39.6%	$10.3M+386.8%	$2.1M	N/A	N/A
Gross Profit	N/A	$2.1M-67.6%	$6.5M+78.6%	$3.7M+998.2%	$334K-74.2%	$1.3M	N/A
SG&A Expenses	$2.7M-22.0%	$3.4M-71.0%	$11.8M+42.8%	$8.3M-43.9%	$14.7M+87.5%	$7.9M+849.4%	$828K
Operating Income	-$3.7M+48.2%	-$7.2M+46.9%	-$13.6M-40.8%	-$9.7M+56.2%	-$22.1M-162.7%	-$8.4M-205.2%	-$2.8M
EBITDA	N/A	-$6.3M+53.3%	-$13.6M-86.4%	-$7.3M+65.0%	-$20.8M-196.2%	-$7.0M-168.3%	-$2.6M
Interest Expense	$1.2M+90.5%	$650K-66.7%	$2.0M	N/A	N/A	N/A	N/A
Net Income	-$19.0M-9.5%	-$17.4M+73.0%	-$64.4M-485.0%	-$11.0M+61.5%	-$28.6M-228.7%	-$8.7M-216.7%	-$2.7M
EPS (Basic)	-$7.67+1.0%	-$7.75-1837.5%	-$0.40	N/A	N/A	N/A	N/A
EPS (Diluted)	-$7.67+1.0%	-$7.75	N/A	N/A	N/A	N/A	N/A
Diluted Shares (Avg)	3M+11.9%	2M-98.6%	159M	N/A	N/A	N/A	N/A

Metric	Q4'2310-K	Q3'2310-Q	Q2'2310-Q	Q1'2310-Q	Q4'2210-K	Q3'2210-Q	Q2'2210-Q	Q1'2210-Q
Revenue	N/A	$4.6M-4.0%	$4.7M-3.1%	$4.8M-2.4%	$4.7M-42.7%	$4.8M-11.2%	$4.8M-12.3%	$4.9M-6.2%
Cost of Revenue	N/A	$2.8M-20.4%	$3.3M-12.8%	$4.0M+18.0%	$3.7M+9.7%	$3.5M-11.3%	$3.8M+6.6%	$3.4M-1.9%
Gross Profit	N/A	$1.0M+55.4%	$584K+71.8%	$53K-93.5%	$296K-77.8%	$671K-54.7%	$340K-82.4%	$816K-54.9%
SG&A Expenses	N/A	$2.1M-18.0%	$2.1M-22.8%	$2.4M-30.6%	-$5.3M-255.7%	$2.6M-26.8%	$2.7M+49.9%	$3.4M+12.3%
Operating Income	N/A	-$1.9M+25.0%	-$1.8M+48.5%	-$2.7M+45.2%	$3.7M+172.7%	-$2.5M+26.9%	-$3.5M-57.7%	-$4.9M-67.8%
EBITDA	N/A	-$1.9M+25.0%	-$1.8M+48.5%	-$2.7M+45.2%	$4.5M+182.3%	-$2.5M+26.9%	-$3.5M-57.7%	-$4.9M-101.6%
Interest Expense	N/A	$253K+2.4%	$590K+227.8%	$287K+61.2%	$45K	$247K+1.6%	$180K-72.1%	$178K
Net Income	N/A	-$1.1M-305.6%	-$3.2M+6.9%	-$3.1M+24.6%	-$10.4M+81.2%	$540K-79.7%	-$3.5M+59.7%	-$4.1M-27.5%
EPS (Basic)	-$7.64-12633.3%	$0.00	-$0.01+50.0%	-$0.01+50.0%	-$0.06+82.4%	$0.00-100.0%	-$0.02+66.7%	-$0.02+60.0%
EPS (Diluted)	-$7.64+1.0%	$0.00	N/A	N/A	-$7.72	$0.00	N/A	N/A
Diluted Shares (Avg)	N/A	260M+15.9%	N/A	N/A	N/A	225M-21.3%	N/A	N/A

Not reported in any period shown, so not listed: R&D Expenses, Income Tax.

STMH Balance Sheet

STMH quarterly balance sheet

Metric	FY2310-K	FY2210-K	FY2110-K	FY2010-K	FY1910-K	FY1810-K	FY1710-K
Total Assets	$13.3M-56.9%	$31.0M-45.8%	$57.2M+27.0%	$45.0M+44.8%	$31.1M+116.3%	$14.4M+230.5%	$4.4M
Current Assets	$13.3M-57.0%	$31.0M+48.9%	$20.8M+294.9%	$5.3M+8.2%	$4.9M+356.2%	$1.1M+78.5%	$598K
Cash & Equivalents	$961K-36.9%	$1.5M-72.1%	$5.5M+156.6%	$2.1M-36.2%	$3.3M+338.8%	$761K+94.4%	$391K
Short-Term Investments	$0	$0	$0	$0	$0	$0	$0
Inventory	N/A	$2.7M-14.4%	$3.1M+74.2%	$1.8M+193.8%	$611K	N/A	N/A
Accounts Receivable	N/A	$313K+20.4%	$260K-42.9%	$455K+6.6%	$427K	N/A	N/A
Long-Term Investments	$0	$0	$0	$0	$0	$0	$0
Goodwill	N/A	$1.5M-79.5%	$7.4M+2.9%	$7.2M+574.9%	$1.1M	N/A	N/A
Total Liabilities	$14.0M+0.2%	$13.9M-39.3%	$23.0M+26.2%	$18.2M+142.4%	$7.5M+23.2%	$6.1M+3573.6%	$166K
Current Liabilities	$14.0M+0.2%	$13.9M-12.3%	$15.9M+9.7%	$14.5M+93.3%	$7.5M+79.6%	$4.2M+2420.2%	$166K
Non-Current Liabilities	$0	$0-100.0%	$7.0M+91.3%	$3.7M	$0-100.0%	$1.9M	$0
Long-Term Debt	$1.1M-51.7%	$2.2M+6.0%	$2.1M-43.0%	$3.7M-9.9%	$4.1M+114.0%	$1.9M	N/A
Total Equity	-$1.7M-111.0%	$15.6M-52.3%	$32.6M+30.4%	$25.0M+19.8%	$20.9M+151.8%	$8.3M+98.0%	$4.2M
Retained Earnings	-$152.1M-14.3%	-$133.1M-15.0%	-$115.8M-125.3%	-$51.4M-27.2%	-$40.4M-250.2%	-$11.5M-306.9%	-$2.8M

Metric	Q4'2310-K	Q3'2310-Q	Q2'2310-Q	Q1'2310-Q	Q4'2210-K	Q3'2210-Q	Q2'2210-Q	Q1'2210-Q
Total Assets	$13.3M-56.9%	$25.7M-38.7%	$26.2M-35.8%	$28.7M-34.5%	$31.0M-45.8%	$41.9M-64.6%	$40.8M-63.4%	$43.8M-61.0%
Current Assets	$13.3M-57.0%	$4.1M-47.8%	$3.4M-46.0%	$3.9M-53.6%	$31.0M+48.9%	$7.8M-54.7%	$6.3M-45.0%	$8.3M+8.8%
Cash & Equivalents	$961K-36.9%	$1.7M-49.9%	$1.0M-17.0%	$921K-71.7%	$1.5M-72.1%	$3.4M-62.7%	$1.3M-72.6%	$3.3M-15.3%
Short-Term Investments	$0	$0	$0	$0	$0	$0	$0	$0
Inventory	N/A	$1.3M-58.0%	$1.4M-56.2%	$2.0M-43.3%	$2.7M-14.4%	$3.1M+9.7%	$3.2M+20.5%	$3.5M+60.9%
Accounts Receivable	N/A	$267K+2.7%	$245K-21.0%	$191K-17.7%	$313K+20.4%	$260K-39.7%	$310K-51.0%	$232K-61.5%
Long-Term Investments	$0	$0	$0	$0	$0	$0	$0	$0
Goodwill	N/A	$1.5M-79.5%	$1.5M-79.5%	$1.5M-79.5%	$1.5M-79.5%	$7.4M-58.9%	$7.4M-56.5%	$7.4M-64.5%
Total Liabilities	$14.0M+0.2%	$14.5M-1.4%	$14.6M+3.2%	$14.5M+4.5%	$13.9M-39.3%	$14.7M-47.7%	$14.1M-60.7%	$13.9M-66.2%
Current Liabilities	$14.0M+0.2%	$6.2M-0.8%	$7.2M-18.7%	$7.0M-0.3%	$13.9M-12.3%	$6.2M-68.0%	$8.8M-69.2%	$7.0M-79.2%
Non-Current Liabilities	$0	$8.3M-1.8%	$7.4M+39.6%	$7.6M+9.2%	$0-100.0%	$8.5M-1.7%	$5.3M-27.5%	$6.9M-8.5%
Long-Term Debt	$1.1M-51.7%	$1.1M-41.1%	$2.2M+270.8%	$2.2M+6.0%	$2.2M+6.0%	$1.8M-43.0%	$600K-87.5%	$2.1M-56.1%
Total Equity	-$1.7M-111.0%	$9.7M-62.3%	$10.2M-59.6%	$12.7M-55.2%	$15.6M-52.3%	$25.8M-70.9%	$25.2M-65.9%	$28.4M-59.1%
Retained Earnings	-$152.1M-14.3%	-$140.5M-14.5%	-$139.4M-13.1%	-$136.2M-13.7%	-$133.1M-15.0%	-$122.7M-102.8%	-$123.3M-95.1%	-$119.8M-119.5%

STMH Cash Flow Statement

STMH quarterly cash flow statement

Metric	FY2310-K	FY2210-K	FY2110-K	FY2010-K	FY1910-K	FY1810-K	FY1710-K
Operating Cash Flow	-$1.2M+75.0%	-$4.9M+46.7%	-$9.3M-84.5%	-$5.0M+23.2%	-$6.5M-252.1%	-$1.9M-96.2%	-$948K
Depreciation & Amortization	N/A	$881K+25362.4%	$3K-99.9%	$2.4M+92.7%	$1.2M-9.9%	$1.4M+955.2%	$129K
Stock-Based Compensation	$313K-60.7%	$797K-61.7%	$2.1M+0.4%	$2.1M-79.6%	$10.2M+79.4%	$5.7M+284.7%	$1.5M
Capital Expenditures	N/A	$215K-62.7%	$577K+22.5%	$471K-65.7%	$1.4M-71.9%	$4.9M+63.8%	$3.0M
Free Cash Flow	N/A	-$5.2M+47.6%	-$9.9M-79.2%	-$5.5M+30.6%	-$7.9M-17.3%	-$6.8M-71.6%	-$3.9M
Investing Cash Flow	N/A	$1.6M+692.4%	$198K+137.0%	-$535K-108.5%	$6.3M+186.2%	-$7.3M-109.8%	-$3.5M
Financing Cash Flow	$1.2M+316.5%	-$562K-104.5%	$12.4M+185.2%	$4.4M+55.5%	$2.8M-70.8%	$9.6M+136.9%	$4.0M

Metric	Q4'2310-K	Q3'2310-Q	Q2'2310-Q	Q1'2310-Q	Q4'2210-K	Q3'2210-Q	Q2'2210-Q	Q1'2210-Q
Operating Cash Flow	$345K-27.7%	-$609K+57.4%	-$296K+85.4%	-$675K+65.7%	$477K+170.1%	-$1.4M+62.1%	-$2.0M+47.1%	-$2.0M-98.8%
Depreciation & Amortization	N/A	$175-20.5%	$179-19.0%	$179-17.9%	$880K+81413.1%	$220-79.7%	$221-78.9%	$218-100.0%
Stock-Based Compensation	N/A	$245K+160.6%	$18K-92.7%	$119K-76.8%	N/A	$94K-89.3%	$245K-88.1%	$512K-32.3%
Capital Expenditures	N/A	N/A	N/A	N/A	$9K-94.1%	$11K-92.5%	$66K-42.1%	$129K-21.8%
Free Cash Flow	N/A	N/A	N/A	N/A	$468K+156.3%	-$1.4M+63.3%	-$2.1M+47.0%	-$2.1M-81.5%
Investing Cash Flow	N/A	$876K-73.7%	N/A	N/A	-$1.8M-347.8%	$3.3M+260.2%	$134K+176.1%	-$130K+16.7%
Financing Cash Flow	$406K+168.5%	$391K+60.2%	$348K+431.4%	$72K+166.7%	-$593K+76.9%	$244K-96.7%	-$105K-102.2%	-$108K-103.8%

Not reported in any period shown, so not listed: Dividends Paid, Share Buybacks.

STMH Financial Ratios

Margins and returns are percentages; the remaining ratios are unitless multiples. Each change compares the year with the year before it, and each quarter with the same quarter a year earlier.

STMH quarterly financial ratios

Metric	FY2310-K	FY2210-K	FY2110-K	FY2010-K	FY1910-K	FY1810-K	FY1710-K
Gross Margin	N/A	11.0%-15.8pp	26.8%+0.6pp	26.3%+12.6pp	13.6%-86.4pp	100.0%	N/A
Operating Margin	N/A	-37.5%+18.3pp	-55.8%+13.4pp	-69.2%	-900.2%	-647.9%	-843.7%
Net Margin	N/A	-90.0%	-263.7%	-78.7%	-1166.6%	-671.1%	-842.4%
Return on Equity	N/A	-111.6%+85.8pp	-197.5%-153.4pp	-44.0%+93.0pp	-137.0%-32.0pp	-105.0%-39.3pp	-65.6%
Return on Assets	-142.5%-86.4pp	-56.1%+56.5pp	-112.5%-88.1pp	-24.4%+67.5pp	-92.0%-31.4pp	-60.5%+2.6pp	-63.1%
Current Ratio	0.95-1.3x	2.22+0.9x	1.31+0.9x	0.36-0.3x	0.65+0.4x	0.26-3.4x	3.61
Debt-to-Equity	N/A	0.14+0.1x	0.06-0.1x	0.150.0x	0.200.0x	0.23+0.2x	0.04
Asset Turnover	N/A	0.62+0.2x	0.43+0.1x	0.31+0.2x	0.080.0x	0.090.0x	0.07
FCF Margin	N/A	-26.8%+13.6pp	-40.4%-1.0pp	-39.4%	-323.3%	-521.5%	-1207.9%

Metric	Q4'2310-K	Q3'2310-Q	Q2'2310-Q	Q1'2310-Q	Q4'2210-K	Q3'2210-Q	Q2'2210-Q	Q1'2210-Q
Gross Margin	N/A	22.5%+8.6pp	12.5%+5.4pp	1.1%-15.4pp	6.3%-9.9pp	13.9%-13.4pp	7.1%-28.1pp	16.5%-17.8pp
Operating Margin	N/A	-41.1%+11.5pp	-38.3%+33.7pp	-55.5%+43.3pp	77.7%+138.8pp	-52.6%+11.3pp	-72.0%-31.9pp	-98.9%-43.6pp
Net Margin	N/A	-24.0%-35.2pp	-69.3%+2.8pp	-63.6%+18.7pp	-220.1%	11.2%-37.7pp	-72.1%	-82.3%-21.8pp
Return on Equity	N/A	-11.4%-13.5pp	-31.8%-18.0pp	-24.1%-9.8pp	-66.7%+102.8pp	2.1%-0.9pp	-13.8%-2.1pp	-14.3%-9.7pp
Return on Assets	N/A	-4.3%-5.6pp	-12.3%-3.8pp	-10.7%-1.4pp	-33.5%+63.1pp	1.3%-0.9pp	-8.5%-0.8pp	-9.3%-6.4pp
Current Ratio	0.95-1.3x	0.66-0.6x	0.47-0.2x	0.56-0.6x	2.22+0.9x	1.25+0.4x	0.71+0.3x	1.19+1.0x
Debt-to-Equity	N/A	0.110.0x	0.22+0.2x	0.17+0.1x	0.14+0.1x	0.070.0x	0.020.0x	0.070.0x
Asset Turnover	N/A	0.18+0.1x	0.18+0.1x	0.17+0.1x	0.150.0x	0.12+0.1x	0.12+0.1x	0.11+0.1x
FCF Margin	N/A	N/A	N/A	N/A	9.9%+20.1pp	-29.9%+42.4pp	-43.5%+28.5pp	-42.4%-20.5pp

Reported as filed but not readable as a share of revenue in the periods where the ratio runs further from zero than a revenue base allows; no change figure is given where either compared period is one of those: Net Margin.

Note: Shareholder equity is negative (-$1.7M), which causes debt-to-equity and return on equity ratios to appear negative or not meaningful. This can occur from accumulated losses or large share buyback programs.

Note: The current ratio is below 1.0 (0.95), indicating current liabilities exceed current assets, which may suggest potential short-term liquidity concerns.

Similar Companies

Newest fiscal year on record for each company. The health score is the peer-relative Financial Health Score for that year; a dash means no score is published for it.

Company	Fiscal year	Revenue	Net income	Net margin	Market cap	Health score
STEM HLDGS INC STMH	FY2023	N/A	-$19.0M	N/A	$667	—
CLEVER LEAVES HLDGS INC CLVR	FY2023	$17.4M	-$17.9M	N/A	$5.3M	—
TREES CORPORATION CANN	FY2023	$18.1M	-$7.1M	-39.1%	$4.7M	—

Where STEM HLDGS INC Ranks

Frequently Asked Questions

Is STEM HLDGS INC profitable?

No, STEM HLDGS INC (STMH) reported a net income of -$19.0M in fiscal year 2023.

How much debt does STEM HLDGS INC have?

As of fiscal year 2023, STEM HLDGS INC (STMH) had $961K in cash and equivalents against $1.1M in long-term debt.

What is STEM HLDGS INC's operating cash flow?

STEM HLDGS INC (STMH) recorded an outflow of $1.2M in operating cash flow during fiscal year 2023, representing cash used by core business activities.

What are STEM HLDGS INC's total assets?

STEM HLDGS INC (STMH) had $13.3M in total assets as of fiscal year 2023, including both current and long-term assets.

What is STEM HLDGS INC's current ratio?

STEM HLDGS INC (STMH) had a current ratio of 0.95 as of fiscal year 2023, which is below 1.0, which may suggest potential liquidity concerns.

What is STEM HLDGS INC's return on assets (ROA)?

STEM HLDGS INC (STMH) had a return on assets of -142.5% for fiscal year 2023, measuring how efficiently the company uses its assets to generate profit.

How does STEM HLDGS INC's liquidity compare with its operating cash outflow?

At the end of fiscal year 2023, STEM HLDGS INC (STMH) held $961K in cash, cash equivalents and investments, and reported an operating cash outflow of $1.2M over that year. Dividing the one by the other, the reported balance equals about 9 months of the outflow reported that year. This is arithmetic over figures already filed, not a projection: it assumes nothing about future spending, financing or operations.

Why is STEM HLDGS INC's debt-to-equity ratio negative or not reported?

STEM HLDGS INC (STMH) has negative shareholder equity of -$1.7M as of fiscal year 2023, so no debt-to-equity ratio is reported: dividing debt by equity that is not positive produces a number that cannot be read as leverage. This can occur when accumulated losses exceed invested capital, or after large share buyback programs. Other solvency metrics like the current ratio or interest coverage may be more informative.

What is STEM HLDGS INC's Piotroski F-Score?

STEM HLDGS INC (STMH) has a Piotroski F-Score of 1 out of 6 computable signals; 3 of the nine could not be computed from available data, so the full-scale strength rating is not shown. The F-Score evaluates nine binary signals across profitability (positive ROA, positive cash flow, improving ROA, earnings quality), leverage (decreasing debt, improving liquidity, no share dilution), and operating efficiency (improving gross margin, improving asset turnover). Scores of 7 to 9 indicate strong and improving fundamentals. Learn more in our complete guide to financial health indicators.

Are STEM HLDGS INC's earnings high quality?

STEM HLDGS INC (STMH) reported a net loss of $19.0M while operations used $1.2M of cash. With neither figure positive, the ratio between the two carries no quality signal. This ratio compares operating cash flow to net income. A ratio above 1.0x means the company generates more cash than its reported earnings, indicating sustainable, cash-backed profits. Ratios below 1.0x suggest earnings rely on accounting accruals rather than actual cash generation. Learn more in our complete guide to financial health indicators.

Can STEM HLDGS INC cover its interest payments?

STEM HLDGS INC (STMH) reported an operating loss of $3.7M against $1.2M in interest expense. There is no operating profit to cover interest, so interest must be met from cash reserves or from financing rather than from operations. This ratio divides operating income by interest expense. Ratios above 5x indicate strong debt-servicing ability, while ratios below 2x suggest the company may face difficulty meeting interest payments if earnings decline. Learn more in our complete guide to financial health indicators.