Garmin (GRMN) FY2025 Earnings Quality Report

Grade: C — Some Red Flags, Investigate

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

Data: SEC EDGAR 10-K (Filed 2026-02-18, FY ended December 27, 2025) + Yahoo Finance

Auditor: Ernst & Young LLP — Unqualified opinion

One-line verdict: Garmin is a rare fortress balance sheet in consumer hardware: $2.7B cash against only $165M in debt, zero net debt, Debt/EBITDA of 0.1x, and a Z-Score of 10.58 deep in the safe zone. Revenue grew 15% to $7.2B with stable 58.7% gross margins and $1.7B in net income backed by $1.6B in operating cash flow (CFFO/NI of 0.98). The single red flag — accounts receivable outpacing revenue for two consecutive years — and the M-Score of -2.24 that barely clears the threshold warrant monitoring but do not suggest manipulation. This is a well-run, conservatively financed company with genuine product diversification across fitness, outdoor, aviation, marine, and auto OEM segments.

Five Segments, All Growing

Per the 10-K, Garmin operates five segments. Net sales increased 15% to $7.2B with total unit sales up approximately 11% to 20.7 million units:

The filing notes "the increase in net sales differs from the increase in total unit sales primarily due to shifts in segment and product mix." This means average selling prices are rising, a positive quality indicator.

Profitability: Consistent and High Quality

"Consolidated gross margin was flat when compared to the year-ago period. The fitness gross margin increase of 130 basis points compared to the year-ago period was primarily attributable favorable product mix. Gross margin remained relatively flat within the outdoor, aviation, marine, and auto OEM segments."

SG&A/Gross Profit at 29.5% is excellent — below 30% is rare. This reflects Garmin's lean corporate structure (headquartered in Switzerland with operations primarily in Olathe, Kansas and Taiwan).

The effective tax rate was 17.4%, up from 16.7% in FY2024. The filing notes "local taxes in the canton of Schaffhausen make up the majority (greater than 50%) of the tax effect" in the state/local category. Garmin's Swiss domicile provides favorable tax treatment — the effective rate is well below the US statutory 21%.

Cash Flow: Strong Cash Conversion, Conservative Allocation

CFFO/NI ratios near 1.0 for three consecutive years indicate high-quality earnings — profits are being converted to cash at essentially a 1:1 ratio. The accruals ratio of 0.3% is near zero, meaning virtually no gap between accounting earnings and economic reality.

Dividends: $3.60 per share annualized in FY2025, paid quarterly at $0.90 per share (up from $0.75 in FY2024). Total dividend payments of approximately $693M, representing about half of free cash flow.

Share repurchases were modest — the filing references repurchase activity at an average price of approximately $252 per share during Q4 FY2025, suggesting a disciplined approach to capital returns.

The 18-Point Screening

Revenue Quality

A2 is the sole red flag. DSO expanded from 57 days to 63 days, and AR growth has exceeded revenue growth for two consecutive years. The DSRI M-Score component of 1.107 is modestly elevated. For a hardware company shipping through distribution channels, this could reflect lengthening payment terms with large retailers or geographic mix shifts toward international markets with longer collection cycles. At 63 days, absolute DSO is still reasonable for consumer electronics.

Expense Quality

B2 flags CapEx growing at 2.5x the rate of revenue. At $270M, CapEx is up from $194M — a $76M increase. For a company investing in manufacturing capacity (Taiwan, Kansas) and aviation certification programs, this level of investment is consistent with 15% revenue growth and not a red flag in itself.

Inventory growth of 20.2% vs COGS growth of 15.0% deserves monitoring. A 5-point gap could indicate forward stockpiling against tariff risks or preparation for new product launches. The filing warns about tariff exposure on products manufactured in Taiwan and other locations.

Cash Flow Quality

Cash flow quality is exceptional. Net cash position of $2.6B ($2.7B cash minus $165M debt) means Garmin could pay off all debt 16x over. Interest coverage is not even calculable because debt is so minimal.

Balance Sheet

Goodwill of $760M plus intangibles of $198M represent only 11% of equity — well within safe territory. The filing notes the company "did not recognize any material goodwill or intangible asset impairment charges in fiscal years 2025, 2024, or 2023." Intangible assets (intellectual property, customer relationships) had gross cost of $606M with accumulated amortization, reflecting a portfolio of smaller acquisitions, none individually material.

Acquisition & Manipulation

Goodwill grew 26% YoY, suggesting Garmin made acquisitions during the year, but at $760M total, the absolute level remains modest. The M-Score of -2.24 passes the -2.22 threshold by only 0.02 — this is technically clean but uncomfortably close. The DSRI (1.107) and SGI (1.151, revenue growth index) are the primary drivers pushing the score toward the danger zone.

Key Risks from the 10-K

1. Tariff and Trade Exposure

The filing warns: "tariffs, duties, and sanctions could significantly harm our results of operations." Garmin manufactures in Taiwan and imports into multiple jurisdictions. "The rapidly evolving international trade environment has created economic and operational uncertainties that could result in outcomes that could materially adversely affect our business." With 20%+ inventory growth potentially reflecting tariff-related pre-buying, this risk is not hypothetical.

2. Single-Source Supplier Dependency

The filing states: "We depend on third party suppliers and licensors, some of which are sole source, for technology and components used in our products." Supply chain disruption could halt production of specialized GPS, aviation, and marine electronics. Auto OEM contracts add concentration risk — "restructuring costs if we are unable to generate profits from auto OEM contracts, which could materially adversely affect our business."

3. Auto OEM Dependency

The auto OEM segment creates contractual obligations with major automakers. If these partnerships sour or if OEMs shift to in-house solutions, Garmin faces potential restructuring costs and stranded investments.

Summary

Grade: C. A fundamentally strong business with one genuine red flag and a borderline M-Score.

Garmin is one of the healthiest balance sheets in the consumer hardware sector: $2.7B net cash, 0.1x Debt/EBITDA, Z-Score of 10.58, and near-perfect CFFO/NI conversion of 0.98. Revenue grew 15%, margins are stable at 58.7%, and the company paid a rising $3.60/share dividend while maintaining a fortress balance sheet.

The C grade (rather than B) is driven by AR outpacing revenue for two consecutive years — a pattern that cannot be dismissed, especially with the M-Score at -2.24 barely clearing the -2.22 threshold. The DSRI and SGI components are pulling the score close to the danger zone. This warrants monitoring in FY2026: if DSO continues expanding, the M-Score will likely cross into grey or fail territory.

The qualitative risks — tariff exposure on Taiwanese manufacturing, single-source suppliers, and auto OEM contract dependency — are standard for a hardware manufacturer. None rises to the level of an existential threat given the balance sheet strength.

**Disclaimer**: This report is based on Garmin's FY2025 10-K filed with SEC EDGAR on February 18, 2026. This is NOT investment advice.

Data: SEC EDGAR 10-K + Yahoo Finance

Auditor: Ernst & Young LLP (Unqualified opinion)

Fiscal year ended: December 27, 2025