AAR Corp (AIR)

The analysis of AAR Corp’s solvency ratios over the period from May 31, 2021, to May 31, 2025, reveals a consistent absence of debt relative to its assets, as evidenced by the debt-to-assets ratio, debt-to-capital ratio, and debt-to-equity ratio, all recorded at 0.00 throughout this timeframe. This indicates that the company has maintained zero reported debt levels, suggesting a fully equity-financed capital structure, with no reliance on leverage for financing its assets.

Conversely, the financial leverage ratio presents a different perspective on the company’s capital structure. It shows a gradual increase from 1.58 in 2021 to 2.35 in 2025. This ratio measures the proportion of total assets to shareholders’ equity, and rising values imply that the company's assets are increasingly financed through debt or other liabilities, or that the accounting measures have shifted in a way that affects total asset or equity figures.

Given the zero debt ratios, the increase in the financial leverage ratio may reflect changes in total assets or equity that are not related to debt. The rising trend from 1.58 to 2.35 suggests a moderate escalation in leverage in terms of total assets relative to equity, but since the fundamental debt ratios remain zero, this indicates that leverage, in the traditional debt sense, is not contributing to the company’s capital structure during this period.

In summary, AAR Corp exhibits a robust solvency profile characterized by the absence of leverage through debt, combined with a gradual increase in financial leverage measured by assets to equity ratios. This stability signifies a low-risk, fully equity-backed position, although the upward trend in assets-to-equity leverage should be monitored to understand underlying changes in asset or equity composition over time.

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Coverage ratios

The interest coverage ratio of AAR Corp exhibits significant fluctuations over the period from May 31, 2021, to May 31, 2025. As of May 31, 2021, the ratio was 7.36, indicating that the company's earnings before interest and taxes (EBIT) were approximately 7.36 times higher than its interest expenses, reflecting a strong ability to meet interest obligations. By May 31, 2022, the ratio experienced a notable increase to 46.29, which suggests a substantial improvement in the company's earnings relative to its interest obligations, possibly due to increased profitability or reduced interest expenses.

However, this elevated level was not maintained, as by May 31, 2023, the ratio declined to 10.93. While still above the typical threshold of 3.0-4.0 for comfortable coverage, this indicates a reduction in the company's capacity to cover interest expenses compared to the previous year. The trend continued downward sharply by May 31, 2024, with the ratio dropping to 2.35, falling below the commonly accepted safe threshold and signaling potential concerns regarding the company's ability to comfortably meet interest obligations solely from operating earnings.

Finally, by May 31, 2025, the interest coverage ratio decreased to 0.00, implying that the company did not generate sufficient EBIT to cover its interest expenses at all, possibly due to zero or negative earnings or a complete cessation of interest expense. This drastic decline suggests a significant deterioration in financial performance or a change in accounting or operational circumstances, raising concerns about the company's financial stability and its ability to service debt obligations without additional sources of income or restructuring efforts.

Overall, the trend indicates an initial period of strong interest coverage, followed by a sharp decline in subsequent years, culminating in an inability to cover interest expenses entirely by 2025. This pattern warrants further analysis into earnings quality, debt structure, and potential operational or financial challenges faced by the company during this period.