CarMax Inc (KMX)

CarMax Inc's liquidity ratios over the past five years demonstrate fluctuations in its ability to meet short-term financial obligations. The current ratio, which indicates the company's ability to cover current liabilities with current assets, has decreased from 3.20 in February 2022 to 2.26 in February 2024. This downward trend suggests a potential weakening in CarMax's short-term liquidity position.

Conversely, the quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, has shown a varying pattern from 2019 to 2023, reaching a peak of 8.54 in February 2023. This suggests that CarMax has a stronger ability to cover its short-term liabilities with its most liquid assets during this period.

The cash ratio, which focuses solely on a company's cash and cash equivalents in relation to its current liabilities, has also fluctuated over the years. Although the ratio has generally remained low, it increased from 0.04 in February 2020 to 0.25 in February 2024. This improvement indicates that CarMax has enhanced its cash position compared to its short-term obligations.

Overall, while the current ratio has shown some decline, the quick and cash ratios reveal a mixed performance in CarMax's short-term liquidity management. It is important for investors and stakeholders to monitor these ratios closely to assess the company's ongoing ability to address its immediate financial commitments.

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Additional liquidity measure

The cash conversion cycle of CarMax Inc has shown fluctuations over the past five years. In the most recent fiscal year ending February 29, 2024, the company's cash conversion cycle increased to 271.29 days from 238.92 days in the previous year. This indicates that CarMax took longer to convert its investments in inventory into cash during the period.

Comparing this to the trend over the last five years, we observe that there was a significant increase in the cash conversion cycle from 47.18 days in the year ending February 29, 2020, to 315.69 days in the year ending February 28, 2021. However, there has been a gradual improvement since then, with the cycle decreasing to 231.71 days in the following year and further to 238.92 days in the year ending February 28, 2023.

The cash conversion cycle is a measure of how efficiently a company manages its working capital, representing the time taken to convert inventory into cash from sales. A longer cycle may indicate inefficiencies in inventory management or slower collection of receivables. CarMax Inc should closely monitor and manage its cash conversion cycle to ensure optimal working capital utilization and liquidity management.