Lithia Motors Inc (LAD)

Short-term

Turnover ratios

Lithia Motors, Inc.'s activity ratios provide insight into how efficiently the company is managing its assets and liabilities.

1. Inventory Turnover:
- The inventory turnover ratio measures how effectively the company is managing its inventory levels.
- The decreasing trend from 2019 to 2023 suggests that the company is holding onto its inventory for longer periods before selling it off.

2. Receivables Turnover:
- Receivables turnover ratio indicates how efficiently the company is collecting payments from its customers.
- The increasing trend from 2019 to 2023 indicates that the company has been able to collect payments from its customers more rapidly over time.

3. Payables Turnover:
- Payables turnover ratio reflects how quickly the company pays its suppliers.
- The increasing trend in payables turnover from 2019 to 2023 suggests that the company is taking longer to pay its suppliers, which could indicate better cash flow management.

4. Working Capital Turnover:
- Working capital turnover ratio demonstrates how efficiently the company is using its working capital to generate sales.
- The decreasing trend from 2019 to 2023 suggests that the company may be less efficient in utilizing its working capital to drive sales.

Overall, while the receivables turnover and payables turnover ratios show positive trends, the inventory turnover and working capital turnover ratios indicate areas where Lithia Motors could potentially improve its operational efficiency.

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Average number of days

Lithia Motors, Inc.'s activity ratios provide insight into the efficiency of the company's management of its inventory, receivables, and payables.

1. Days of inventory on hand (DOH):
The trend in DOH shows a fluctuating pattern over the past five years, with an increase from 2019 to 2020, followed by a decrease in 2021, and then an increase again in 2022 and 2023. A higher number of days indicates that the company is holding onto inventory for a longer period before selling it, which could tie up working capital and lead to increased storage costs. The recent increase in 2022 and 2023 may suggest potential inefficiencies in inventory management that could be further analyzed and optimized.

2. Days of sales outstanding (DSO):
The DSO ratio has shown some variability, hovering around the 10-17 day range over the past five years. A lower DSO indicates that the company is collecting receivables faster, which is generally positive as it improves cash flow and reduces the risk of bad debts. The decrease in DSO from 2022 to 2023 could signify improved credit management practices or a more efficient collection process.

3. Number of days of payables:
Lithia Motors has managed its payables effectively over the years, maintaining a consistent range of around 4-5 days. A lower number of days of payables suggests that the company is paying its suppliers relatively quickly, which may indicate good relationships with suppliers and the ability to negotiate favorable payment terms. However, excessively short payment terms could potentially strain liquidity and cash flow, so it is essential to strike a balance in managing payables.

Overall, the analysis of these activity ratios suggests that Lithia Motors has room for improvement in managing its inventory turnover efficiently, has shown effectiveness in collecting receivables, and has maintained a stable approach towards managing payables. By closely monitoring these ratios and making strategic adjustments, the company can enhance its operational performance and financial health.

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Long-term

The long-term activity ratios of Lithia Motors, Inc. provide insights into the efficiency with which the company utilizes its fixed and total assets to generate sales.

Fixed asset turnover has shown a fluctuating trend over the past five years, starting at 7.86 in 2019, peaking at 7.89 in 2022, and then slightly decreasing to 7.80 in 2023. This ratio indicates that the company generates $7.80 in sales for every dollar invested in fixed assets. The decreasing trend in this ratio suggests a slight decline in the efficiency of utilizing fixed assets to generate revenue, but it still remains at a relatively high level.

On the other hand, total asset turnover has also shown fluctuations over the same period, with a high of 2.08 in 2019, dropping to 1.58 in 2023. This ratio signifies that the company generated $1.58 in sales for every dollar invested in total assets in 2023. The decreasing trend in total asset turnover indicates a decline in overall asset efficiency in generating sales, which could be attributed to changes in the company's asset base or sales performance.

In general, both ratios suggest that Lithia Motors, Inc. has been able to generate sales efficiently with its assets over the years, although there have been some fluctuations. The company may need to focus on optimizing its asset utilization further to improve long-term profitability and return on investment.