AAR Corp (AIR)

The analysis of AAR Corp's solvency ratios over the specified period reveals several key insights. Notably, the debt-to-assets ratio, debt-to-capital ratio, and debt-to-equity ratio consistently registered values of zero throughout all observed dates, from August 2020 through May 2025. This persistent zero indicates that the company maintains no measurable short-term or long-term debt on its balance sheet during this timeframe, reflecting an entirely equity-financed capital structure or the absence of debt liabilities.

In contrast, the financial leverage ratio exhibited variability but remained within a moderate range. Starting at approximately 1.92 in August 2020, it declined to around 1.52 in early 2022, suggesting a period of reduced leverage. Subsequently, this ratio experienced an upward trajectory, reaching approximately 2.42 by May 2025. The increasing trend in the financial leverage ratio signifies a gradual reliance on debt or other forms of borrowed capital, or potentially an increased proportion of debt relative to equity, even if measured assets or liabilities are not explicitly reported in the provided data.

The overall pattern indicates that while AAR Corp historically maintained a minimal or non-existent debt profile, there has been a trend towards increased leverage towards the latter part of the analyzed period. However, given the consistent null values in the traditional debt-centric ratios, the firm’s leverage appears to be primarily driven by factors other than straightforward debt obligations, possibly including off-balance-sheet liabilities or other financial structures not captured in these ratios.

In summary, the company demonstrated a strong initial position characterized by zero debt ratios, signifying high solvency and low financial risk. The observed increase in the financial leverage ratio over time suggests a shift toward greater leverage, although traditional debt ratios remained at zero, indicating that AAR Corp's solvency position, as per the provided data, remains robust, with no evident reliance on debt financing across the period analyzed.

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Coverage ratios

The analysis of AAR Corp’s interest coverage ratios over the specified periods reveals significant fluctuations indicative of varying financial stability and operational performance.

In the fiscal year ending August 31, 2020, the interest coverage ratio was notably low at 0.14, suggesting that the company was unable to generate sufficient earnings before interest and taxes (EBIT) to cover its interest expenses, highlighting a period of financial stress or operational challenges. This difficult position persisted into November 2020, with the ratio declining further into negative territory at -2.84, indicating that EBIT was insufficient not only to cover interest but possibly driven by net losses or extraordinary charges.

The situation improved markedly by the fiscal year ending May 31, 2021, with the ratio rising to 4.84, signaling a recovery in earnings capacity relative to interest obligations. This positive trend continued through subsequent periods, with ratios escalating to 14.00 on August 31, 2021, and reaching even more robust levels of 25.16 (November 2021), 35.67 (February 2022), and 45.58 (May 2022). These figures suggest a period of strong operational performance, with earnings well exceeding interest expenses, thereby providing substantial coverage and financial stability.

This favorable trend persisted into later periods, with interest coverage ratios remaining comfortably above 10 until August 31, 2022, and declining gradually thereafter. By November 30, 2022, the ratio was 29.57, and it gradually decreased with time, reaching 17.68 (February 2023), 11.12 (May 2023), and 6.07 (August 2023). These reductions indicate a gradual erosion in earnings capacity or rising interest expenses relative to earnings, though coverage remained above 1.0, implying that the company still retained the ability to meet its interest obligations.

The most recent data points demonstrate a continuing decline in interest coverage, with a ratio of 5.10 as of November 30, 2023, and further decreases to 3.59 (February 2024), 2.63 (May 2024), and 2.83 (August 2024). The trend suggests growing pressure on the company's earnings to cover interest, yet the ratio remains above 1.0, indicating that interest payments are still being met, though with reduced safety margins.

Projected figures for the subsequent periods depict a further decline, with ratios falling to 1.70 (November 2024), 1.22 (February 2025), and 0.64 (May 2025). This progressive decrease signifies ongoing risk, as a ratio below 1.0 implies that earnings before interest and taxes may no longer be sufficient to cover interest expenses, raising concerns over the company’s capacity to meet its debt obligations comfortably in the future.

Overall, AAR Corp’s interest coverage trend illustrates a historical pattern of recovery following periods of severe financial stress, succeeded by a gradual erosion of coverage capacity. Continued decline in this ratio could indicate increasing financial leverage or declining profitability, warranting careful monitoring of the company’s ability to service its interest obligations going forward.