O’Reilly Automotive Inc. (NASDAQ:ORLY)

The analysis of the quarterly financial ratios over the observed periods reveals several notable trends in operational efficiency and cash flow management.

Inventory Turnover

The inventory turnover ratio remained relatively stable around 1.4 from early 2018 through 2019, with a slight decline observed towards the end of 2019 and early 2020. From mid-2020 onwards, there was a consistent upward trend peaking at approximately 1.71 by late 2021 before slightly stabilizing near 1.64 in 2022. This suggests improvements in inventory management and sales efficiency in the most recent periods.

Receivables Turnover

The receivables turnover ratio displayed some volatility. Initial values hovered around the high 30s to mid-40s through 2018 and 2019, with peaks above 49 noted in late 2018 and late 2020. Following these peaks, the turnover generally settled in the mid-40s range through 2021, with a declining trend emerging in 2022 down to around 41.5, indicating a slight weakening in the effectiveness of collections in the most recent period.

Payables Turnover

There was a gradual decline in payables turnover from about 1.34 in early 2018 to a low of approximately 1.22 by late 2022. This decline indicates that the company is taking longer to pay its suppliers over time. The decreasing turnover ratio suggests an extension in payment periods, corroborated by the increasing average payables payment period.

Average Inventory Processing Period

The average number of days inventory remains on hand increased from about 258 days in early 2018 to a peak near 270 days in early 2020. However, a marked improvement occurred subsequently, with the period decreasing to approximately 213 days by the end of 2021, before slightly rising again to about 222 days in 2022. This pattern aligns with the improved inventory turnover noted.

Average Receivable Collection Period

The receivable collection period was consistently low, fluctuating mainly between 7 and 10 days across all periods. Minor variations were observed, but overall, the company maintained efficient receivables management and collection speed.

Operating Cycle

The operating cycle remained relatively stable around the 266 to 278 days range from 2018 to early 2020, then improved, decreasing to about 220 days by the end of 2021. A slight increase was seen in 2022 to 231 days. The reduction reflects improvements in working capital management, particularly inventory handling and receivables collection.

Average Payables Payment Period

This metric revealed a steady increase over the entire period from approximately 273 days in early 2018 to nearly 299 days by late 2022. This indicates that the company has been gradually extending its payment terms or delaying payments to suppliers, which could be a strategic approach to optimize cash flow.

Cash Conversion Cycle

The cash conversion cycle (CCC), consistently negative throughout the analyzed period, shows a progressive improvement in cash flow efficiency. The CCC moved from around -6 days in early 2018 to a low point near -68 days by late 2022. A negative cash conversion cycle implies that the company recovers cash from sales before it needs to pay its suppliers, an indicator of favorable working capital management and operational liquidity.

In summary, the company demonstrated enhanced efficiency in inventory management and maintained strong receivables collection throughout the period. The extension of payables payment periods suggests a strategic focus on preserving cash. The improvement in the cash conversion cycle underscores a strengthening in overall working capital management, positioning the company for improved liquidity and operational flexibility.

Cost of Goods Sold, Including Warehouse and Distribution Expenses

The cost of goods sold (COGS) demonstrated a generally increasing trend over the entire period. Starting around 1,081,423 thousand US dollars in March 2018, it experienced some fluctuations but showed significant growth particularly from early 2020 onwards. Notably, there was a marked increase from March 2020 through September 2022, with values rising from approximately 1,180,581 to about 1,863,657 thousand US dollars. This upward movement likely reflects increased sales volume, higher input costs, or expanded distribution activities.

Inventory

Inventory levels showed a consistent upward trajectory over the analyzed period. Beginning near 3,052,748 thousand US dollars in March 2018, inventory steadily increased to reach approximately 4,137,945 thousand US dollars by September 2022. The inventory growth pace appears relatively stable, suggesting ongoing investment in stock to support sales or expansion. The consistent inventory buildup alongside rising COGS could imply efforts to maintain supply chain resilience or anticipation of increased demand.

Inventory Turnover Ratio

The inventory turnover ratio remained close to 1.4 in the early periods, reflecting a relatively stable rate of inventory movement. A notable improvement is visible starting from late 2020, with the ratio increasing to about 1.64 by September 2022. This increase indicates more efficient inventory management, faster sales relative to stock levels, or improvements in supply chain and operational efficiencies. The rising turnover ratio coupled with increasing inventory and COGS suggests that the company improved its ability to convert inventory into sales while managing a higher inventory base.

The reviewed quarterly financial metrics reveal several key trends in sales, accounts receivable, and receivables turnover over the observed periods.

Sales

Sales exhibit a generally positive trend with some fluctuations. Initially, sales increased from approximately $2.28 billion in March 2018 to around $2.66 billion by September 2019. Subsequently, the sales dipped slightly towards the end of 2019 but experienced a significant rebound starting in the first quarter of 2020, climbing sharply to a peak exceeding $3.47 billion by September 2021. Afterward, sales saw a modest decline toward the end of 2021 and early 2022 but rebounded again, nearing $3.80 billion by September 2022. Overall, sales demonstrate robust growth, particularly evident in the 2020-2022 period.

Accounts Receivable, Net

The net accounts receivable amounts show fluctuations but generally align with the trend in sales. Beginning at $224 million in March 2018, receivables rose to peak near $262 million in June 2019 before falling somewhat towards the end of 2019. Through 2020 and into 2021, accounts receivable resumed an upward trajectory, reaching upwards of $283 million by September 2021. A subsequent moderate increase brings this figure to approximately $338 million by September 2022. This steady growth in receivables reflects increased credit extended to customers, in line with rising sales volumes.

Receivables Turnover

The receivables turnover ratios illustrate variability with cyclical and seasonal patterns. Initially starting at around 40.6 in Q1 2018, the turnover ratio dipped to a low of approximately 37.4 during mid-2019, indicating slower collection periods. However, a notable improvement was observed at the end of 2018 and again at the end of 2020, where turnover ratios peaked near or above 49.5, implying faster collections or improved management of receivables. The ratios fluctuate between approximately 41.5 and 50.5 across the periods, with no clear sustained upward or downward trend. This suggests continuous operational adjustments affecting credit and collection efficiency, mitigating the impact of increased sales and receivables.

In summary, the data reflects strong sales growth accompanied by proportional increases in accounts receivable, while receivables turnover ratios indicate periodic shifts in collection efficiency that generally stabilize around historical levels. The interplay of these factors signals effective revenue generation with ongoing efforts to manage credit risk and cash flow timing.

Cost of Goods Sold, including Warehouse and Distribution Expenses

The cost of goods sold (COGS) exhibited a generally upward trend over the observed periods. Starting at approximately $1.08 billion in the first quarter of 2018, COGS fluctuated moderately but showed notable increases from mid-2019 onwards. There was a marked rise between the first quarter of 2020 and the third quarter of 2021, where values escalated from roughly $1.18 billion to $1.66 billion. Following this peak, slight fluctuations occurred, culminating in a peak near $1.86 billion in the third quarter of 2022. This pattern indicates increasing costs potentially related to higher sales volumes or inflationary pressures on procurement and distribution.

Accounts Payable

Accounts payable consistently increased throughout the analyzed timeframe. Starting just above $3.22 billion in the first quarter of 2018, it rose steadily each quarter, reaching approximately $5.57 billion by the third quarter of 2022. This continuous growth suggests extended credit terms with suppliers or an increase in purchases on account, paralleling the rise in cost of goods sold. The steady upward movement reflects expanding operational scale or delayed payments.

Payables Turnover Ratio

The payables turnover ratio exhibited a slight declining trend over the period analyzed. Initial values hovered around 1.34 in early 2018, with minor quarter-to-quarter variances. Over time, the ratio trended downward to about 1.22 by the third quarter of 2022. This decline indicates the company may be taking longer to pay its suppliers on average, which aligns with the significant increase in accounts payable. A lower turnover ratio often implies a slower payment cycle, suggesting a strategic extension of payment terms or potential cash flow management efforts.

Summary of Observations

The data reveals a coherent pattern of increasing operational scale, as evidenced by the rising costs of goods sold and accounts payable. The steady growth in accounts payable alongside a decreasing payables turnover ratio implies a longer payment period to suppliers over time. This behavior could reflect strategic working capital management aimed at optimizing cash flow or negotiating extended payment terms. Overall, the financial metrics portray an expanding business with increasing procurement activity accompanied by slower payment cycles.

The analysis of the quarterly financial data reveals several notable trends and patterns regarding working capital, sales, and working capital turnover over the observed periods.

Working Capital

Working capital consistently shows negative values throughout all periods, indicating a persistent current liabilities excess over current assets. From March 2018 to September 2022, the negative working capital deepens considerably. Initially, the deficit was approximately -$301.8 million, worsening to over -$2.08 billion by the latest period in September 2022. This decline is not linear but exhibits periods of sharper decreases, especially in early 2019 and again in 2021 and 2022. Such substantial negative working capital might reflect strategic working capital management practices or changes in short-term liabilities or assets structure.

Sales

Sales exhibit a generally upward trajectory over the analyzed timeframe, moving from about $2.28 billion in March 2018 to nearly $3.80 billion by September 2022. The increase is somewhat steady, with some fluctuations around the end of 2019 and 2020–2021 periods. A notable sales surge appears beginning in mid-2020, rising sharply through 2021 and continuing upward through 2022. This upward sales trend suggests business growth or successful market expansion despite external disruptions that could have affected some quarters.

Working Capital Turnover

No specific data values are provided for working capital turnover, so direct quantitative analysis is unavailable. However, given the consistent negative and growing deficit in working capital alongside increasing sales figures, it can be inferred that the working capital turnover ratio could reflect heightened efficiency in the use of working capital or a structural reliance on payable extensions. The egress in working capital relative to rising sales could indicate improvement in turnover ratio, assuming sales growth outpaces working capital needs.

In summary, the company demonstrates significant growth in sales over the period reviewed, while operating with a deepening negative working capital position. This pattern may suggest a strategic approach to managing current assets and liabilities to optimize operational liquidity and support increasing sales volumes. However, the persistent negative working capital warrants careful monitoring to ensure it does not signal liquidity risks or operational strain. The absence of explicit working capital turnover data limits direct conclusions on efficiency ratios, but the available measures imply evolving operational dynamics that leverage working capital management amid revenue growth.

Inventory Turnover Ratio

The inventory turnover ratio exhibits a generally stable pattern during the initial periods from March 2018 through June 2019, maintaining values close to 1.4. A gradual decline is noted toward March 2020, reaching a low of 1.35. Following this decline, a marked improvement occurs starting mid-2020, with the ratio increasing steadily to peak at 1.71 by December 2021. In early 2022, a slight downward adjustment is observed, with the ratio tapering to around 1.64 by September 2022. Overall, the data reflects a strengthening in inventory turnover efficiency in the latter periods.

Average Inventory Processing Period (Days)

The average inventory processing period remains relatively consistent, hovering around 258 to 265 days through December 2019, indicating stable inventory holding times. A notable reduction begins at the start of 2020, decreasing sharply to 242 days by September 2020, signaling improved inventory management and faster processing. This downward trend continues through December 2021, reaching a low point of 213 days, which corresponds inversely to the increased turnover ratio observed in the same timeframe. However, from March 2022 onward, there is a mild reversal with days increasing slightly again to approximately 222, suggesting a modest slowdown in inventory processing.

Summary of Trends

The data indicates that inventory management efficiency declined modestly up to early 2020 but improved significantly during and after 2020, as evidenced by rising inventory turnover ratios and decreasing average processing days. This improvement suggests enhanced operational control or favorable market conditions enabling faster inventory movement. The slight deterioration in early 2022 may warrant attention to understand underlying causes but does not negate the overall positive trajectory established post-2020.

The analysis of the receivables turnover and average receivable collection period over multiple quarters reveals several key trends and insights.

Receivables Turnover Ratio

The receivables turnover ratio exhibits notable fluctuations across the periods. Initially, the ratio ranged around the high 30s to just below 40 in early 2018. It experienced a significant increase at the end of 2018, peaking near 50, indicating an acceleration in the collection of receivables during that period.

Through 2019, the ratio demonstrates some volatility but maintains generally elevated levels relative to earlier quarters, with figures mostly above mid-30s and approaching 47 by year-end. The trend continues into 2020 and 2021, where the turnover ratio again peaks above 50 in the final quarter of 2020.

Post-2021, the receivables turnover ratio shows a moderate decline, moving from a high near 49 down to the low 40s by the last recorded quarter in 2022. This pattern suggests a slight deceleration in the frequency of receivable collections towards the latter part of the data series.

Average Receivable Collection Period

The average receivable collection period remains relatively stable throughout the analyzed quarters, consistently hovering between 7 and 10 days. Periods with a higher turnover ratio tend to correspond with a slightly reduced collection period, especially noticeable in the final quarters of 2018 and 2020, where the days dipped to 7.

Overall, despite modest variability, the collection period remains short, indicating efficient receivables management and prompt collection practices. The slight increases to 9 or 10 days occur intermittently but generally return quickly to the 7-8 day range, underscoring maintained operational consistency.

Combined Insights

The inverse relationship between the receivables turnover ratio and the average collection period aligns with typical expectations: as the turnover ratio increases, the number of days to collect tends to decrease. The data indicates the company successfully managed to accelerate collections at certain points, particularly in late 2018 and 2020, potentially improving cash flow.

However, the slight decline in turnover and corresponding increase in collection days during 2022 may warrant monitoring to ensure that receivables management remains effective. Stability in the average collection period suggests sound credit and collection policies, but fluctuations in turnover ratios highlight the influence of business cycles, sales volume changes, or customer payment behavior on working capital efficiency.

Inventory Processing Period

The average inventory processing period exhibited a generally decreasing trend from March 2018 through December 2021, declining from 258 days to 213 days. This indicates an improvement in inventory management efficiency over this period. However, starting in March 2022, there was a slight increase, reaching 222 days by September 2022, suggesting a modest slowdown in inventory turnover towards the most recent quarters.

Receivable Collection Period

The average receivable collection period remained relatively stable throughout the period under review, fluctuating mainly between 7 and 10 days. There was a minor decrease in late 2020 and early 2021, reaching a low of 7 days, reflecting marginally faster collections. Yet, by the mid and late quarters of 2022, the period returned to around 8 to 9 days, close to earlier values, indicating consistent collection practices over time.

Operating Cycle

The operating cycle followed a trend similar to that of the inventory processing period, with a gradual decline from 267 days in early 2018 to a low of 220 days in December 2021. This illustrates an overall improvement in the combined efficiency of inventory turnover and receivables collection. However, from March 2022 onwards, the operating cycle lengthened slightly, rising to 231 days by September 2022, paralleling the recent increase observed in inventory processing days.

Summary

Overall, the data reflect progressive improvements in operational efficiency from 2018 through the end of 2021, primarily driven by shortened inventory processing and operating cycles. The accounts receivable collection period remained stable with minor fluctuations. Recent quarters in 2022 show a modest reversal in these trends, with increases in both inventory processing and operating cycles, potentially indicating emerging challenges in inventory management or changes in operational dynamics during that period.

The payables turnover ratio exhibited a generally stable trend over the examined periods, fluctuating within a narrow range around 1.3. Specifically, it began at 1.34 in the first quarter of 2018 and showed minor decreases and increases, maintaining a level close to this initial value. The ratio peaked again at 1.34 in the first and fourth quarters of 2021 before gradually declining to 1.22 by the third quarter of 2022.

In parallel, the average payables payment period showed an increasing trend over the course of the data timeline. It started at 273 days in the first quarter of 2018, then experienced minor fluctuations but generally increased, reaching 281 days by the third quarter of 2019. A noticeable rise followed, with the period peaking at 299 days in the third quarter of 2022.

Payables Turnover Ratio

This ratio remained relatively stable, indicating consistent management of payables with only slight fluctuations. The slight downward trend towards the latter periods may suggest a modest extension in the time taken to pay suppliers or changes in purchasing patterns.

Average Payables Payment Period

The increasing number of days to pay payables reflects a deliberate or market-driven extension of payment terms. This trend suggests that the company has been taking longer to settle its obligations, which could be a strategic decision to optimize cash flow or a response to external financial conditions.

Interrelationship

Considering both metrics together, the extension in the average payment period with a concurrent slight decline in payables turnover implies that while the company maintains a fairly steady volume of payables relative to cost of goods or purchases, it has been progressively stretching payment timelines.

Average Inventory Processing Period

The average inventory processing period showed a gradual increase from 258 days at the beginning of 2018, reaching a peak of 270 days in the first quarter of 2020. Afterward, there was a noticeable decline to 213 days by the end of 2021, followed by a slight increase stabilizing around 222 days in the last quarters of 2022. This pattern indicates an initial lengthening of inventory holding, which then reversed to a more efficient inventory turnover in subsequent periods.

Average Receivable Collection Period

The average receivable collection period remained relatively stable throughout the observed periods, fluctuating mostly between 7 and 10 days. Minor variations occurred, but the general pattern suggests consistent efficiency in collecting receivables over time.

Average Payables Payment Period

The average payables payment period exhibited a general upward trend, increasing from 273 days at the start of 2018 to 299 days by the third quarter of 2022. This gradual increase suggests a strategic extension of payment terms or delays in payments, potentially improving cash retention.

Cash Conversion Cycle

The cash conversion cycle consistently remained negative throughout all periods, indicating that the company was able to collect cash from sales before paying its suppliers. The negative cycle deepened over time, moving from a -6 day cycle in the first quarter of 2018 to -68 days by the third quarter of 2022. This trend reflects an increasing efficiency in managing working capital, with improvements primarily driven by the lengthening of the payables payment period and reductions in inventory processing time.