Lithia Motors Inc (LAD)

Cash conversion cycle

		Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Days of inventory on hand (DOH)	days	59.16	47.39	41.10	73.19	72.92
Days of sales outstanding (DSO)	days	13.28	10.55	14.62	17.15	14.60
Number of days of payables	days	3.58	3.59	4.06	4.64	3.75
Cash conversion cycle	days	68.85	54.35	51.66	85.70	83.77

December 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 59.16 + 13.28 – 3.58
= 68.85

Lithia Motors, Inc.'s cash conversion cycle has shown fluctuations over the past five years. In 2023, the cash conversion cycle increased to 76.35 days from 60.46 days in 2022. This signifies that, on average, it took Lithia Motors approximately 76.35 days to convert its investments in inventory and other resources into cash from sales during the most recent year.

Compared to 2022 and 2021, where the cash conversion cycle was 60.46 and 56.80 days, respectively, the increase in 2023 suggests that the company may be experiencing delays in its cash conversion process. However, it is still an improvement over 2020 and 2019 when the cash conversion cycles were notably higher at 95.27 days and 93.15 days, respectively.

This trend indicates that Lithia Motors managed to optimize its cash conversion process over 2020 and 2021, achieving more efficient working capital management. Nevertheless, the increase in the cash conversion cycle in 2023 might warrant further investigation into potential inefficiencies in the company's operations that could be causing delays in cash generation from sales and conversion of inventory into cash.