Aptiv (APTV) 2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-06) + Yahoo Finance

Auditor: Ernst & Young LLP — Clean opinion (unqualified)

One-line verdict: Aptiv is a $20.4B revenue auto parts supplier undergoing a major corporate reorganization (separating into New Aptiv and its Electrical Distribution Systems business), with two structural red flags: goodwill and intangibles at 72% of equity ($6.6B) from prior acquisitions, and cash covering only 23% of $8.1B in debt. Net income collapsed 91% to $165M due to $1.6B in Separation-related charges, yet operating cash flow held at $2.2B, producing a 13.2x CFFO/NI ratio that signals massive non-cash charges rather than earnings manipulation. The M-Score of -2.88 clears manipulation concerns. The core question is whether the post-Separation entity will carry a sustainable capital structure.

The Business: Auto Technology in Transition

The 10-K describes Aptiv as a global technology company serving the automotive sector, with three reportable operating segments realigned in early 2025: Advanced Safety and User Experience, Engineered Components Group, and Electrical Distribution Systems. The filing states the company's "products were found in 18 of the 20 top-selling vehicle models in the United States, 17 of the 20 top-selling vehicle models in Europe." The customer base includes the 25 largest automotive OEMs in the world, with 29% of net sales from the Asia Pacific region.

A major Separation transaction is underway: "Old Aptiv established a new publicly-listed Jersey parent company, Aptiv Holdings Limited ('New Aptiv'), which is resident for tax purposes in Switzerland."

Profitability: Collapse Driven by Separation Charges

The dramatic net income decline to $165M is driven by Separation-related costs. The filing notes "third-party professional fees associated with planning the Separation" and expects "to continue to incur additional expenses related to the Separation through the completion of the transaction." Gross margin has steadily improved from 15.1% to 19.1% over four years, suggesting the underlying business is healthy.

Cash Flow: Strong Operations Despite Profit Collapse

The 13.2x CFFO/NI ratio is a watch item, but it reflects massive non-cash charges (depreciation, amortization, impairment) depressing reported profits rather than cash flow manipulation. Free cash flow of $1.5B is genuinely strong. CapEx declined 21% as the company focuses on the Separation.

The filing states: "As of December 31, 2025, Aptiv had no amounts outstanding under the Revolving Credit Facility and approximately $2 million in letters of credit were issued under the Credit Agreement."

The 18-Point Screening

Beneish M-Score Component Breakdown:

Key Risks from the 10-K

1. Supply Chain Disruption (Item 1A)

The filing warns: "We and our customers use a broad range of materials and supplies, including copper and other metals, petroleum-based resins, chemicals, electronic components and semiconductors. A significant disruption in the supply of these materials for any reason could decrease our production and shipping levels, which could materially increase our operating costs and materially decrease our profit margins."

2. Separation Execution Risk

The ongoing corporate Separation into New Aptiv creates execution risk. The filing states the company "expects to continue to incur additional expenses related to the Separation through the completion of the transaction." Post-separation capital allocation and debt structuring remain uncertain.

3. Customer Concentration and Auto Industry Cyclicality

The company's "ten largest platforms in 2025 were with six different OEMs." Any downturn in auto production directly impacts revenue. The filing notes the just-in-time delivery model means "a failure of any single supplier can have a material impact on the business."

4. Heavy Goodwill and Intangible Load

Goodwill of $4.6B and intangibles of $2.0B represent 72% of equity. These reflect prior acquisitions and are subject to impairment if market conditions deteriorate or the Separation restructuring reduces projected cash flows of reporting units.

5. Debt Burden

Total debt of $8.1B against cash of $1.9B creates refinancing risk, particularly during the transition period of the Separation.

Key Financial Trends (4-Year)

Summary

Grade: F. Two red flags — goodwill/intangibles concentration and insufficient cash coverage of debt.

Aptiv's underlying business is healthy: gross margins are expanding (15.1% to 19.1% over four years), free cash flow is robust at $1.5B, and the M-Score of -2.88 shows no signs of manipulation. The accruals ratio of -8.6% is excellent. The dramatic net income collapse to $165M is a transitory event driven by Separation-related charges, not a deterioration of operations.

The structural concerns are real but context-dependent. The $6.6B goodwill+intangibles load (72% of equity) reflects legacy acquisitions. The $8.1B debt against $1.9B cash creates a 23% coverage ratio — thin, but Debt/EBITDA at 3.6x and interest coverage at 5.6x are manageable. The key risk is how these obligations will be allocated post-Separation.

Investors should focus on the post-Separation capital structure: which entity inherits the debt, how goodwill is distributed, and whether the new entities maintain the strong free cash flow generation that currently supports the obligations.

**Disclaimer**: This report is based on Aptiv's fiscal year 2025 10-K filed with the SEC on February 6, 2026. This is NOT investment advice.

**About EarningsGrade**: We screen earnings reports for financial red flags using an 18-point forensic framework. Grade F means major red flags were detected — in this case, balance sheet leverage and intangible asset concentration.