AAR Corp (AIR)

The liquidity ratios of AAR Corp observed over the analyzed period reflect a generally stable liquidity position with some moderate fluctuations.

Current Ratio:
The current ratio, which measures the company's ability to meet its short-term obligations with its short-term assets, exhibits a gradual upward trend from 2.72 as of August 31, 2020, to a peak of approximately 3.28 on November 30, 2022. This indicates a strong liquidity buffer during this timeframe. Following this peak, the ratio shows a slight decline but remains above 3.00 through most of 2023 and into 2024, ending at 2.72 as of May 31, 2025. The ratio's above-3.00 level in recent periods suggests a consistent ability to cover current liabilities comfortably, positioning the company with solid short-term liquidity.

Quick Ratio:
The quick ratio, which excludes inventory from current assets to gauge immediate liquidity, displays a similar upward trend from approximately 0.81 in August 2020 to a peak of 1.15 in February 2023. This indicates enhanced liquidity when excluding inventory, reflecting a stronger position in readily available assets. Post-peak, the ratio sustains between 1.01 and 1.14, demonstrating that a significant portion of current assets can be quickly liquidated to meet short-term obligations without reliance on inventory sales.

Cash Ratio:
The cash ratio, representing the most conservative liquidity measure by considering only cash and cash equivalents, remained relatively stable in the period, fluctuating between 0.11 and 0.27. It was highest around August 2020 and November 2020 at 0.27 and generally maintained below 0.20 during much of 2021 and 2022. This indicates that at any given time, the company's cash holdings alone were insufficient to cover immediate liabilities, although it maintained enough cash relative to short-term obligations consistent with typical industry standards.

Overall, the liquidity ratios suggest that AAR Corp has maintained a stable and increasingly robust liquidity position over the period. The current and quick ratios have improved or remained strong, indicating sound short-term solvency and the ability to meet immediate financial obligations. The cash ratio's lower but stable levels reflect prudent cash management, with sufficient liquidity in relation to current liabilities, especially considering the company's operational structure.

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Additional liquidity measure

The analysis of AAR Corp's cash conversion cycle (CCC) over the specified periods reveals a pattern of fluctuation within a relatively narrow range. The CCC during August 2020 was approximately 130.03 days, indicating the duration it takes for the company to convert its investments in inventory and receivables into cash after settling its payables was around 130 days. Over the subsequent periods, this figure increased steadily, peaking at approximately 167.15 days in November 2022, representing a lengthening of the cycle by about 37 days from the initial period. This suggests a trend towards longer times to cycle cash through the company’s operations, possibly due to extended receivables or inventory holding periods, or delayed payables.

Following the peak in late 2022, the CCC showed signs of stabilization and slight improvement, declining to around 153.80 days in May 2023 and further decreasing to 150.17 days in August 2023. The most recent data points indicate a continuing downward trend, with CCC dropping to 148.50 days in November 2023, and further to approximately 146.44 days in February 2024. This decrease suggests an improvement in operational efficiency, potentially due to faster collection of receivables, better inventory management, or extended payables periods.

Looking ahead, projections for the period May 2024 through February 2025 show some variability, with the CCC moving slightly above and below the 146–161 day range, ultimately ending at approximately 146.65 days in February 2025. Overall, the trend indicates a gradual narrowing of the cash conversion cycle in recent periods, pointing towards more efficient cash flow management. The observed fluctuations reflect typical operational changes, and the recent decline suggests ongoing efforts to optimize working capital processes.