O’Reilly Automotive Inc. (NASDAQ:ORLY)

The financial liquidity ratios for the company over the five-year period demonstrate a general decline in short-term financial strength as measured by the current and quick ratios, with some variability observed in the cash ratio.

Current Ratio

The current ratio shows a consistent downward trend from 0.93 in 2017 to 0.77 in 2021. This decline suggests a decreasing ability of the company to cover its short-term liabilities with its short-term assets, potentially indicating tighter liquidity or more aggressive management of current assets and liabilities.

Quick Ratio

The quick ratio exhibits a more variable pattern. From a low base of 0.09 in 2017, it decreases slightly to 0.07 by 2019 before increasing sharply to 0.15 in 2020, and then slightly decreasing again to 0.13 in 2021. This fluctuation reflects changes in the company's most liquid assets (excluding inventories and prepaid expenses) relative to current liabilities, with a notable improvement in liquidity in 2020.

Cash Ratio

The cash ratio remains very low throughout the period, starting at 0.01 in 2017 and 2018, remaining steady in 2019, then increasing to 0.09 in 2020, followed by a slight decrease to 0.06 in 2021. Despite the low absolute values, the increase in 2020 indicates a temporary improvement in cash and cash equivalents available to cover current liabilities, though the ratio remains low overall.

Overall, the financial ratios indicate a trend towards reduced liquidity capacity using broad measures, but with some short-term improvements in more stringent liquidity measures during 2020, likely reflecting strategic adjustments to cash management during that period. The continued low cash ratio highlights a potentially precarious position in immediate liquidity needs.

The financial data reveals several significant trends regarding liquidity and short-term financial health over the five-year period ending in 2021.

Current Assets

Current assets demonstrated a generally increasing trend, growing from approximately $3.40 billion in 2017 to about $4.50 billion in 2021. This indicates an accumulation of assets that can be converted into cash within a year, potentially reflecting growth in inventory, receivables, or cash reserves.

Current Liabilities

Current liabilities also showed a steady increase from approximately $3.65 billion in 2017 to nearly $5.87 billion in 2021. The rise in liabilities suggests that short-term obligations and debts have expanded over this period, possibly due to higher operational costs, increased borrowing, or delayed payments to suppliers.

Current Ratio

The current ratio, which measures the company's ability to cover its short-term liabilities with short-term assets, declined consistently from 0.93 in 2017 to 0.77 in 2021. Throughout the period, the ratio remained below 1.0, indicating that current liabilities exceeded current assets every year. The downward trend points to a potential weakening in liquidity, highlighting that the company's short-term financial obligations were increasingly not fully covered by its current assets.

Overall, while current assets increased, the rate of increase in current liabilities outpaced that of current assets, resulting in decreased liquidity as reflected by the declining current ratio. This trend may warrant closer scrutiny to ensure that short-term financial stability is maintained and that there are sufficient liquid resources to meet immediate obligations.

Total quick assets

The total quick assets demonstrated variability over the years, beginning at approximately 339 million US dollars in 2017 and showing a slight decrease in 2018 to around 301 million. There was a modest recovery in 2019 to roughly 335 million, followed by a significant increase in 2020 reaching nearly 796 million. In 2021, the quick assets slightly decreased to approximately 748 million but remained substantially higher than in earlier years. This indicates an overall upward trend in liquid assets after 2019, suggesting improved asset liquidity or accumulation of assets that are readily convertible into cash.

Current liabilities

Current liabilities exhibited a consistent and steady increase throughout the period under review. Starting at approximately 3.65 billion US dollars in 2017, current liabilities rose each year, reaching about 3.89 billion in 2018, 4.47 billion in 2019, 5.26 billion in 2020, and culminating at around 5.87 billion in 2021. This steady rise in short-term obligations implies growing operational or financial commitments in the short term, which may impact liquidity and working capital management.

Quick ratio

The quick ratio remained low across all years, indicating that liquid assets cover only a small fraction of current liabilities. From 2017 to 2019, the ratio showed a gradual decline from 0.09 to 0.07, reflecting a slight deterioration in liquidity when considering quick assets relative to current liabilities. However, there was a notable improvement in 2020, where the quick ratio increased sharply to 0.15, followed by a slight decrease to 0.13 in 2021. Despite this improvement, the ratio remains below 1.0, highlighting continued limited coverage of immediate liabilities by quick assets and suggesting potential liquidity management challenges.

The analysis of the financial data over the five-year period reveals notable trends in liquidity and short-term financial obligations.

Total Cash Assets

Total cash assets fluctuated significantly during the period. Initially, the values were relatively low and stable, rising from 46,348 thousand US dollars in 2017 to 40,406 thousand in 2019. There was then a substantial increase in 2020, reaching 465,640 thousand, before decreasing to 362,113 thousand in 2021. This sharp rise in 2020 followed by a decline suggests a possible strategic accumulation and subsequent reduction of cash reserves, potentially in response to market conditions or internal capital management decisions.

Current Liabilities

Current liabilities showed a consistent upward trend across the years. The liabilities increased from 3,647,366 thousand US dollars in 2017 to 5,874,615 thousand in 2021. This steady growth indicates an expanding obligation base, which may reflect business growth, increased operational costs, or other short-term financial commitments.

Cash Ratio

The cash ratio, which measures the ability to cover current liabilities with cash and cash equivalents, remained very low in the first three years at 0.01. However, there was a marked improvement in 2020 to 0.09, followed by a decrease to 0.06 in 2021. This improvement aligns with the increase in cash assets in 2020, enhancing the company's short-term liquidity position temporarily. Despite the improvement, the ratio remains low overall, suggesting limited cash reserves relative to current liabilities.

In summary, the company has experienced notable volatility in its cash assets with a significant peak in 2020, accompanied by a consistent increase in current liabilities throughout the period. The cash ratio improved temporarily but remains low, indicating a continued reliance on other sources to meet short-term liabilities despite occasional increases in cash reserves.