We Think Shareholders Should Be Aware Of Some Factors Beyond Air T's (NASDAQ:AIRT) Profit

After announcing healthy earnings, Air T, Inc.'s (NASDAQ:AIRT) stock rose over the last week. While the headline numbers were strong, we found some underlying problems once we started looking at what drove earnings.

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Examining Cashflow Against Air T's Earnings

One key financial ratio used to measure how well a company converts its profit to free cash flow (FCF) is the accrual ratio. The accrual ratio subtracts the FCF from the profit for a given period, and divides the result by the average operating assets of the company over that time. You could think of the accrual ratio from cashflow as the 'non-FCF profit ratio'.

As a result, a negative accrual ratio is a positive for the company, and a positive accrual ratio is a negative. That is not intended to imply we should worry about a positive accrual ratio, but it's worth noting where the accrual ratio is rather high. To quote a 2014 paper by Lewellen and Resutek, "firms with higher accruals tend to be less profitable in the future".

For the year to March 2026, Air T had an accrual ratio of 0.61. Statistically speaking, that's a real negative for future earnings. To wit, the company did not generate one whit of free cashflow in that time. In the last twelve months it actually had negative free cash flow, with an outflow of US$42m despite its profit of US$78.0m, mentioned above. It's worth noting that Air T generated positive FCF of US$7.8m a year ago, so at least they've done it in the past. Having said that, there is more to the story. We can see that unusual items have impacted its statutory profit, and therefore the accrual ratio. One positive for Air T shareholders is that it's accrual ratio was significantly better last year, providing reason to believe that it may return to stronger cash conversion in the future. Shareholders should look for improved cashflow relative to profit in the current year, if that is indeed the case.

Check out our latest analysis for Air T

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Air T.

How Do Unusual Items Influence Profit?

Given the accrual ratio, it's not overly surprising that Air T's profit was boosted by unusual items worth US$119m in the last twelve months. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. We ran the numbers on most publicly listed companies worldwide, and it's very common for unusual items to be once-off in nature. And that's as you'd expect, given these boosts are described as 'unusual'. Air T had a rather significant contribution from unusual items relative to its profit to March 2026. As a result, we can surmise that the unusual items are making its statutory profit significantly stronger than it would otherwise be.

Our Take On Air T's Profit Performance

Air T had a weak accrual ratio, but its profit did receive a boost from unusual items. On reflection, the above-mentioned factors give us the strong impression that Air T'sunderlying earnings power is not as good as it might seem, based on the statutory profit numbers. If you want to do dive deeper into Air T, you'd also look into what risks it is currently facing. Be aware that Air T is showing 4 warning signs in our investment analysis and 2 of those are a bit unpleasant...

Our examination of Air T has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.