Trane Technologies plc (TT) Cash Flow Statement

The OCF/NI ratio has been consistently above 1.0 in most quarters, with a notable spike to 1.97 in 2025Q4, as per reported figures. This suggests that reported earnings are well-backed by cash generation, though the 2025Q1 ratio of 0.56 indicates seasonal working capital outflows that temporarily depress conversion. Investors should monitor whether this pattern persists as growth accelerates.

The FCF trajectory shows a clear upward trend, with 2026Q2 FCF margin of 18.8% well above the 2025Q1 trough of 4.7%. This improvement aligns with the revenue acceleration and margin expansion noted in the income statement, suggesting that operating leverage is translating directly into cash flow. The gap between FCF and net income remains narrow, reinforcing the quality of earnings.

CapEx/Rev has stayed consistently below 3.3% across the period, with 2026Q2 at 1.3%. This low capital intensity suggests that TT's growth is not heavily dependent on fixed asset investment, freeing up cash for other uses. The modest CapEx relative to D&A (which averaged around $95M per quarter) implies that maintenance capex is well covered, and the company may be investing selectively in high-return projects.

The working capital line shows a clear seasonal pattern, with outflows in Q1 and inflows in Q4, likely reflecting customer payment cycles and inventory builds ahead of peak demand. In 2026Q2, the positive $92.5M change contributed to the strong OCF, but investors should expect similar swings in future quarters. This volatility is a normal part of TT's business model, but it can obscure underlying cash generation trends.

The company has consistently returned capital through dividends (growing from $189M in 2024Q1 to $228M in 2026Q2) and opportunistic buybacks, with a notable $908M repurchase in 2025Q3. Acquisitions have been modest, except for a $668M outlay in 2026Q1, suggesting a selective M&A approach. This balanced deployment supports the healthy balance sheet signal while enhancing shareholder returns.

The cumulative OCF/NI ratio of approximately 1.14 over the period suggests that TT's earnings are consistently backed by strong cash generation, with non-cash charges like D&A and favorable working capital management contributing to the surplus. This divergence is a positive signal for investors, as it implies that reported profits are not being inflated by aggressive accruals. However, the trend should be monitored for any reversal as growth matures.