Lithia Motors Inc (LAD)

Lithia Motors Inc's liquidity ratios show a mixed performance over the past five years. The current ratio, which assesses the company's ability to cover short-term obligations with its current assets, has generally improved from 1.35 in 2020 to 1.19 in 2024, reaching a peak of 1.46 in 2022. This indicates that the company has sufficient current assets to meet its current liabilities.

The quick ratio, a more stringent measure of liquidity that excludes inventory from current assets, fluctuated over the same period, ranging from a low of 0.22 in 2024 to a high of 0.44 in 2021. Despite the variability, the quick ratio generally stayed above 0.2, suggesting that Lithia Motors Inc can cover its short-term obligations without relying on selling inventory.

On the other hand, the cash ratio, which focuses solely on the company's ability to pay off current liabilities with its cash and cash equivalents, showed a significant increase from 0.06 in 2020 to 0.03 in 2024. This upward trend indicates that the company's cash position relative to its current liabilities strengthened over the period, peaking at 0.20 in 2023.

In summary, while Lithia Motors Inc's current ratio demonstrated consistent improvement in liquidity, the quick ratio showed some fluctuation, and the cash ratio exhibited a notable increase before declining in the most recent year. This analysis suggests that the company generally maintains an adequate level of liquidity to meet its short-term obligations, with a growing focus on cash holdings as a primary liquidity measure.

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Additional liquidity measure

The cash conversion cycle of Lithia Motors Inc has exhibited some fluctuations over the years. In 2020, the company's cash conversion cycle was 85.70 days, indicating a relatively long period for the conversion of investments in inventory and accounts receivable into cash.

However, in the subsequent years, there seems to have been an improvement in the efficiency of the company's cash conversion cycle. By the end of 2021, the cycle had reduced significantly to 51.66 days, suggesting a more streamlined process of converting resources into cash.

While there was a slight increase in the cash conversion cycle in 2022 and 2023 to 54.35 days and 68.85 days, respectively, the cycle remained relatively stable. This indicates that the company may have faced some challenges in managing its working capital efficiency during those periods.

By the end of 2024, the cash conversion cycle increased slightly to 71.33 days, still below the initial level in 2020. This suggests that the company may be making efforts to improve its working capital management efficiency.

Overall, the trend in Lithia Motors Inc's cash conversion cycle indicates variable performance in converting investments into cash over the years, with some periods showing improvements while others indicate challenges in working capital management. Further analysis of the underlying factors contributing to these variations would be necessary to provide a more in-depth assessment of the company's financial performance.