CarMax Inc (KMX)

CarMax Inc's liquidity ratios show fluctuations over the years, indicating changes in its ability to meet short-term obligations:

1. Current Ratio:
- The current ratio, which measures the company's ability to cover its short-term liabilities with current assets, improved from 2.42 in February 2021 to 3.20 in February 2022, suggesting stronger liquidity.
- However, there was a decrease in the current ratio to 2.60 in February 2023 and a further drop to 2.26 in February 2024, indicating a potential decrease in the company's short-term liquidity.
- The absence of a current ratio for February 28, 2025, makes it difficult to assess the trend for that period accurately.

2. Quick Ratio:
- The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, was low at 0.08 in February 2021 and decreased to 0.05 in February 2022, indicating a limited ability to cover immediate liabilities.
- There was a significant improvement in the quick ratio to 7.66 in February 29, 2024, reflecting a substantial increase in the company's ability to cover short-term obligations without relying on inventory.
- The absence of data for the quick ratio in February 28, 2025, prevents a complete analysis of this aspect for that year.

3. Cash Ratio:
- The cash ratio, which focuses solely on cash and cash equivalents to cover current liabilities, mirrored the trends seen in the quick ratio over the same periods.
- The highest cash ratio of 7.66 in February 29, 2024, indicates a strong ability to meet short-term obligations using readily available cash resources.
- Similar to the quick ratio, the absence of data for the cash ratio in February 28, 2025, limits the analysis for that year.

Overall, the liquidity ratios of CarMax Inc have shown fluctuations, with improvements in certain years but possibly declining liquidity in others. The company's ability to cover short-term obligations varied over the years, impacted by changes in current assets and the exclusion of inventory from quick ratios.

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Additional liquidity measure

The cash conversion cycle of CarMax Inc has shown fluctuations over the years. As of February 28, 2021, the company's cash conversion cycle was 69.54 days, indicating the average number of days it takes for CarMax to convert its investments in inventory and other resources into cash received from its sales.

Over the subsequent years, the cash conversion cycle saw improvements, with a decrease to 65.37 days as of February 28, 2022, followed by a more significant reduction to 50.59 days by February 28, 2023. This trend suggests that CarMax has been managing its inventory and accounts receivable efficiently, resulting in a faster conversion of investments into cash.

However, there was an increase in the cash conversion cycle to 56.35 days as of February 29, 2024. Although this represents a slight setback, the company's performance in this aspect remained relatively stable compared to the initial years analyzed.

Notably, as of February 28, 2025, the cash conversion cycle is reported as 0.00 days. This could indicate a change in reporting or calculation methods, as a zero-day cash conversion cycle is uncommon in practice.

Overall, the trend in CarMax Inc's cash conversion cycle shows variations in efficiency over the years, with improvements in managing working capital and converting investments into cash for the most part. It is important for the company to continue monitoring and optimizing its cash conversion cycle to enhance liquidity and operational efficiency.