The stability of gross margin around 24-25% suggests that Garrett's pass-through mechanisms and product mix are effectively offsetting raw material inflation, a key risk flagged in recent context. Operating margin expansion from 11.6% in Q1 2024 to 15.5% in Q1 2026 indicates that fixed-cost absorption is improving as volumes recover, but the Q2 2026 anomaly (gross margin 6.4%, operating margin -0.2%) warrants caution, as it may reflect a one-time charge or revenue recognition issue. Net margin of 10.3% in Q2 2026, despite an operating loss, implies significant non-operating income, which investors should adjust for when assessing sustainable earning power.

The wide range in ROIC—from 11.0% to 21.4%—indicates that returns are highly sensitive to quarterly earnings swings, which is typical for a cyclical auto supplier with high operating leverage. The negative ROIC in Q2 2026 is likely driven by the same anomaly that compressed operating margin, but the longer-term trend suggests that Garrett is generating strong incremental returns on its asset-light model, with PP&E only 17% of total assets. However, the negative equity base complicates ROE and ROIC interpretation, as the denominator is distorted by historical losses and preferred stock classification, so investors should focus on unlevered metrics like ROA, which has remained stable around 3-4%.

The negative CCC, which has persisted for most quarters, suggests that Garrett is effectively using its suppliers as a source of working capital, paying them later than it collects from customers. DPO of 110-141 days is exceptionally high, reflecting the company's bargaining power with suppliers, though it may also indicate stretched payment terms that could strain relationships. DSO has remained stable around 71-80 days, while DIO has been relatively low at 33-45 days, indicating efficient inventory management. This working capital profile is a key driver of Garrett's strong cash conversion, with OCF/NI averaging 1.3x, but investors should monitor whether DPO can be sustained at these levels.

The reduction in D/EBITDA from over 13x to around 8-10x reflects both EBITDA growth and modest debt reduction, but leverage remains elevated relative to peers like BorgWarner (D/E 0.74). Interest coverage of 5.37 in Q1 2026 is adequate, but the Q2 2026 figure of -0.08 is alarming, though it is likely distorted by the same one-time items that compressed operating income. The negative equity base, driven by historical losses and preferred stock, means that traditional D/E ratios are not meaningful, and investors should focus on D/EBITDA and cash flow coverage. The company's aggressive deleveraging strategy, including preferred stock redemptions, appears to be reducing the cost of capital, but the absolute debt level of ~$1.5B remains a key risk.

The current ratio hovering near 1.0 suggests that Garrett has just enough short-term assets to cover its current liabilities, but the quick ratio of 0.76 indicates that inventory is a significant component of current assets, which could be harder to liquidate in a downturn. Cash of $158M is relatively low compared to total debt of ~$1.5B, but the company's ability to generate strong operating cash flow (OCF/NI 1.3x) provides some comfort. However, in a severe recession scenario, the thin liquidity buffer could force Garrett to rely on external financing or draw down credit lines, which may be costly given its credit profile. Investors should monitor the current ratio closely, as any deterioration below 1.0 could signal liquidity stress.