Neogen Corporation (NEOG)

Interest coverage

		May 31, 2025	Feb 28, 2025	Nov 30, 2024	Aug 31, 2024	May 31, 2024	Feb 29, 2024	Nov 30, 2023	Aug 31, 2023	May 31, 2023	Feb 28, 2023	Nov 30, 2022	Aug 31, 2022	May 31, 2022	Feb 28, 2022	Nov 30, 2021	Aug 31, 2021	May 31, 2021	Feb 28, 2021	Nov 30, 2020	Aug 31, 2020
Earnings before interest and tax (EBIT) (ttm)	US$ in thousands	-447,217	-434,409	-430,396	46,887	64,236	140,019	143,680	111,084	110,523	39,959	30,652	65,967	67,918	70,146	79,543	77,019	74,169	73,858	71,127	70,154
Interest expense (ttm)	US$ in thousands	70,978	73,114	73,662	73,553	73,394	72,727	71,902	74,415	56,928	39,500	22,075	1,530	561	78	337	892	1,614	3,182	4,488	5,204
Interest coverage		-6.30	-5.94	-5.84	0.64	0.88	1.93	2.00	1.49	1.94	1.01	1.39	43.12	121.07	899.31	236.03	86.34	45.95	23.21	15.85	13.48

May 31, 2025 calculation

Interest coverage = EBIT (ttm) ÷ Interest expense (ttm)
= $-447,217K ÷ $70,978K
= -6.30

The analysis of Neogen Corporation's interest coverage ratios over the specified periods reveals significant fluctuations, illustrating shifting financial dynamics. At the end of August 2020, the ratio stood at 13.48, indicating that earnings before interest and taxes (EBIT) were sufficient to cover interest expenses approximately 13 times, reflecting a robust capacity to meet interest obligations early in that period.

Progressing into late 2020 and early 2021, the ratio experienced substantial growth, reaching 15.85 by November 2020 and sharply increasing to 23.21 by February 2021, followed by an extraordinary rise to 45.95 by May 2021. This upward trend continued markedly, with ratios reaching 86.34 at the end of August 2021 and soaring to an exceptional 236.03 in November 2021. The peak was observed in February 2022 at 899.31, implying an extremely high EBIT relative to interest expenses.

Subsequently, there was a notable decline starting from March 2022, where the ratio fell to 121.07 by May 2022, and further decreased to 43.12 by August 2022. The downward trajectory persisted into late 2022 and early 2023, with ratios diminishing sharply to 1.39 in November 2022, further declining to 1.01 in February 2023, and only slightly rising to 1.94 in May 2023 and 1.49 by August 2023.

From this point onward, the ratios indicate increasing financial strain, with values approaching closer to unity—significant because a ratio near 1 suggests EBIT just covers, or is barely sufficient to cover, interest expenses. Specifically, the ratios in late 2023 and early 2024 show minor fluctuations around 2, with November 2023 at 2.00 and February 2024 at 1.93.

However, the situation deteriorates further in the periods beyond that, with interest coverage ratios turning negative in November 2024 (-5.84), and continuing to decline into early 2025 at -5.94 and -6.30, indicating that EBIT has become negative and thus cannot cover interest obligations at all. Negative ratios imply that earnings are insufficient to meet interest expenses, reflecting substantial financial distress.

Overall, the historical trend indicates periods of strong interest coverage support during 2020 and early 2022, followed by a rapid and sustained decline, culminating in an inability to service interest obligations without incurring losses or additional borrowing by late 2024 and early 2025. This trend suggests deteriorating financial health and increased risk related to debt servicing capabilities over the examined timeframe.