Penguin Solutions, Inc. (PENG)

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	23,237	34,307	12,050	-2,789	17,860	4,050	-7,774	6,554	24,419	61,918	92,322	109,672	116,640	84,286	80,675	55,572	39,200	43,414	27,775	24,360
Interest expense (ttm)	US$ in thousands	12,555	18,149	23,215	28,378	35,294	38,441	40,622	39,557	33,729	29,525	24,557	21,169	19,710	19,649	19,552	17,600	15,832	13,877	13,662	15,000
Interest coverage		1.85	1.89	0.52	-0.10	0.51	0.11	-0.19	0.17	0.72	2.10	3.76	5.18	5.92	4.29	4.13	3.16	2.48	3.13	2.03	1.62

May 31, 2025 calculation

Interest coverage = EBIT (ttm) ÷ Interest expense (ttm)
= $23,237K ÷ $12,555K
= 1.85

The interest coverage ratio of Penguin Solutions, Inc. exhibits notable fluctuations over the specified periods, reflecting variations in the company's ability to meet its interest obligations through its operating earnings.

Initially, on August 31, 2020, the ratio stood at 1.62, indicating a modest capacity to cover interest expenses. This ratio increased significantly by November 30, 2020, reaching 2.03, and continued to improve through early 2021, peaking at 3.13 on February 28, 2021. During this period, the company demonstrated a stronger ability to service its interest costs, with ratios well above the critical benchmark of 1.0.

Subsequently, the ratios maintained a relatively stable upward trend into 2021 and 2022, with values such as 4.13 on November 30, 2021, and reaching a high of 5.92 on May 31, 2022. These elevated figures suggest periods of robust earnings relative to interest expenses, indicative of a stronger financial position during this time frame.

However, from August 31, 2022, onward, a downward trend becomes apparent. The ratio declined from 5.18 in August 2022 to 3.76 in November 2022, and further decreased to 2.10 by February 28, 2023. The trend continued deteriorating into 2023, with the ratio dropping sharply to 0.72 on May 31, 2023, and then falling below 1.0 to 0.17 on August 31, 2023.

Significantly, as of November 30, 2023, the ratio turned negative at -0.19, indicating that operating earnings were insufficient not only to cover interest expenses but also resulting in a net operating loss with respect to interest obligations. This negative trend persisted through early 2024, with the ratio at 0.11 on February 29, 2024, then reversing again slightly to 0.51 on May 31, 2024. On August 31, 2024, the ratio was marginally negative at -0.10, and by November 30, 2024, it increased again to 0.52.

Further, projections through 2025 show some improvement, with forecasts of 1.89 on February 28, 2025, and 1.85 by May 31, 2025, suggesting a tentative recovery in the company's ability to meet its interest obligations.

Overall, the trend indicates that Penguin Solutions, Inc. experienced a period of strengthening interest coverage during 2020-2022, followed by a substantial deterioration in the subsequent years, culminating in negative coverage figures in late 2023 and early 2024. The company’s capacity to cover interest expenses has become increasingly precarious, with the potential for financial distress if earnings do not improve sufficiently in future periods.