O’Reilly Automotive Inc. (NASDAQ:ORLY)

Inventory Turnover

The inventory turnover ratio remained relatively stable around 1.4 through 2017 and 2018, with slight fluctuations. Starting in 2020, there was a noticeable upward trend, increasing from 1.35 in Q3 2020 to a peak of 1.71 in Q4 2021. Subsequently, the ratio slightly declined but remained elevated compared to earlier periods, indicating improved efficiency in inventory management over the recent years.

Receivables Turnover

The receivables turnover ratio showed some volatility. A notable dip occurred in 2018, with values decreasing to the high 30s, followed by recovery to over 40s in some quarters. The period from 2019 to 2022 showed oscillations but generally maintained a range between 40 and 50. This reflects intermittent changes in the speed of collecting receivables, with occasional stronger collection performance.

Payables Turnover

This ratio displayed modest variation throughout the periods, generally fluctuating between 1.22 and 1.34. An overall mild declining trend is observable towards the latest quarters, dropping to about 1.22 by Q3 2022, suggesting the company may be extending payment terms slightly over time.

Average Inventory Processing Period

The average inventory processing days held steady near 258 days from 2017 through 2019, then trended downward beginning in 2020, reaching a low near 213 days in Q4 2021. This reduction implies faster inventory turnover. However, in 2022, the period stabilized around 220 days, indicating the pace of inventory processing settled after improvement.

Average Receivable Collection Period

The receivable collection period generally hovered between 7 and 10 days. Minor variations occurred but no significant trend is evident, suggesting stable credit and collection policies maintained across the observed periods.

Operating Cycle

The operating cycle, combining inventory and receivables days, showed a downward trend starting in 2020, declining from approximately 278 days in late 2019 to about 220 days by the end of 2021. This indicates an overall improvement in the efficiency of converting inventory and receivables into cash. The value then stabilized around 230 days in 2022.

Average Payables Payment Period

The payables payment period was relatively stable but showed an increasing trend overall, moving from approximately 274–278 days in 2017–2019 to as high as 299 days by Q3 2022. This suggests the company is gradually taking longer to pay suppliers, possibly to optimize cash management.

Cash Conversion Cycle

The cash conversion cycle was negative across all periods reported, indicating the company was able to collect cash from customers before paying its suppliers. Importantly, this cycle shortened markedly from around -7 days in 2017–2018 to a low of about -68 days by Q3 2022. The sustained decrease signifies enhanced operational efficiency with a faster cash cycle, reflecting better working capital management and liquidity position over time.

Cost of Goods Sold (COGS) and Expenses

The cost of goods sold, inclusive of warehouse and distribution expenses, demonstrates a general upward trend over the analyzed quarters. Beginning at approximately 1,025 million US dollars in the first quarter of 2017, this figure exhibits a cyclical pattern with periodic declines, particularly visible at year-end quarters such as December 2017 and December 2018. Notably, from early 2020 onward, there is a sharper increase, reaching a peak exceeding 1,860 million US dollars by the third quarter of 2022. This upward movement suggests rising operational costs, potentially driven by increased sales volumes, inflationary pressures, or expanded distribution activities.

Inventory Levels

Inventory levels steadily increase throughout the period under review. Starting at about 2,872 million US dollars in the first quarter of 2017, the inventory base grows consistently every quarter, reaching over 4,137 million US dollars by the third quarter of 2022. This continuous build-up indicates an expanding stockpile, possibly in anticipation of higher sales demand or as a buffer against supply chain uncertainties. The increments are generally smooth without significant volatility, reflecting a deliberate inventory management approach aligned with business growth.

Inventory Turnover Ratio

The inventory turnover ratio, available from the first quarter of 2018, begins at 1.41 and remains relatively stable, fluctuating slightly around that level until mid-2020. After this period, there is a noticeable upward trajectory in turnover, rising from approximately 1.35 in early 2020 to a peak close to 1.71 by the first quarter of 2022 before a modest decline towards the 1.64 range later in 2022. This increasing turnover rate signals improved efficiency in inventory management, indicating that inventory is being sold and replenished more quickly over time. The uptick from 2020 onward may also reflect strategic adjustments in supply chain or sales efforts in response to market conditions.

Overall Insights

The data reveals a company experiencing growth through rising inventory and cost levels, managing to improve inventory turnover efficiency alongside this expansion. The steady increase in inventory coupled with a rising turnover ratio suggests effective inventory utilization, potentially contributing to enhanced operational performance. The marked increase in costs in recent years warrants attention, as it may impact margins if not matched by proportional revenue growth. The patterns indicate adaptability and scaling within the operations, with particular strength in inventory management emerging from 2020 onward.

The quarterly financial data reveals several notable trends in the company's sales, accounts receivable, and receivables turnover over the analyzed periods.

Sales

Sales exhibit an overall increasing trend from March 2017 through September 2022, with fluctuations occurring within individual years. Initially, sales moved upwards from approximately 2.16 billion US dollars in March 2017 to just above 2.5 billion by December 2019, indicating steady growth. A significant surge is observed in the quarters of 2020, peaking near 3.2 billion in September 2020, which might reflect an unusual market condition or operational response.

Following this peak, sales continue to grow with moderate fluctuations, reaching nearly 3.8 billion by September 2022. Despite periodic declines at the end of 2020 and early 2021, the upward trajectory resumes strongly towards the latter part of the data range.

Accounts receivable, net

The net accounts receivable follows a somewhat parallel increasing pattern, rising from approximately 195.7 million in March 2017 to over 338 million by September 2022. The data presents some volatility, such as a notable decrease in December 2018 relative to prior quarters, followed by recovery and further growth.

This increasing trend in receivables correlates with the overall sales expansion, suggesting an increase in credit sales or extended collection periods. However, the varying magnitudes between periods imply changes in credit management or payment terms over time.

Receivables turnover ratio

The receivables turnover ratio demonstrates fluctuations across reported periods, reflecting changing efficiency in collection practices. From a range around 38-41 in early 2017-2018, it rises notably to peaks above 50 during certain quarters, such as March 2021, signaling accelerated collection cycles during these times.

Conversely, some quarters witness a decline in turnover ratio down to the low 40s, indicating slower collections or increased outstanding receivables. These oscillations suggest variability in the company's working capital management effectiveness, potentially influenced by external economic factors or internal credit policies.

In summary, the company shows a consistent upward trend in sales and related accounts receivable, with receivables turnover ratios oscillating—sometimes reflecting improved collections and other times indicating slowing cycles. These patterns highlight dynamic operational conditions, where revenue growth is accompanied by growing credit exposure, necessitating careful monitoring of receivables management to sustain liquidity and financial stability.

The cost of goods sold (COGS), including warehouse and distribution expenses, exhibits a generally upward trend over the observed periods. Beginning at approximately 1,025 million USD in the first quarter of 2017, COGS fluctuated modestly before increasing significantly from mid-2020 onward, peaking near 1,863 million USD in the third quarter of 2022. Notable acceleration occurred in 2020 and continued through 2022, suggesting increased operational activity or rising input costs during this timeframe.

Accounts payable also shows a strong increase over the same period, starting around 2,988 million USD in the first quarter of 2017 and reaching approximately 5,574 million USD by the third quarter of 2022. The growth in accounts payable is relatively steady, reflecting expanding credit purchases or extended payment terms in line with the rising scale of operations or cost inputs.

The payables turnover ratio, available for selected periods starting in the fourth quarter of 2017, remains relatively stable with modest fluctuations. It typically ranges between 1.22 and 1.34, indicating that the company turns over its payables roughly once every one-third of a year. A slight downward trend appears from mid-2021, with the ratio decreasing from about 1.34 to 1.22 by the third quarter of 2022. This may indicate a slowing in the rate at which the company settles its payables relative to purchases, or possibly changes in payment policies or supplier terms.

Cost of Goods Sold (COGS)

Displays a consistent increasing pattern, with a significant rise starting in 2020 through 2022, potentially due to increased sales volume, cost inflation, or operational expansion.

Accounts Payable

Shows continuous growth that parallels the increase in COGS, signaling higher purchasing activity and possibly extended credit terms.

Payables Turnover Ratio

Relatively stable over time but shows a slight decline in recent periods, suggesting slower payment cycles or adjustments in credit management.

Working Capital

The working capital exhibits a predominantly negative trend throughout the periods, indicating that current liabilities exceed current assets consistently. Beginning at approximately -300 million US dollars in March 2017, the negative working capital deepens significantly over time, with marked deteriorations in late 2019 and 2021. The most pronounced decline is observed at the end of the first quarter of 2022, reaching over -2 billion US dollars. There are some short-term recoveries, for example in mid-2020, but the overall trajectory suggests increasing reliance on short-term liabilities or decreasing current assets.

Sales

Sales figures show a general upward trend over the observed quarters. Starting at around 2.16 billion US dollars in March 2017, sales gradually increase over the years with some seasonality evident, peaking frequently in the third quarter or later in the year. Notable spikes are observed in mid-2020 through 2021, reaching peaks above 3.4 billion US dollars, which represent significant growth compared to earlier periods. The increase in sales continues into 2022, with the highest recorded figure near 3.8 billion US dollars in the latest period.

Working Capital Turnover

No data is available for working capital turnover, limiting the ability to assess efficiency in utilizing working capital related to sales generation directly. Given the persistent negative working capital and rising sales, it would suggest a complex dynamic where sales growth is potentially supported by increasing liabilities or other financing mechanisms rather than current asset improvements.

Summary and Insights

The data indicates that while sales have consistently increased, the company’s working capital position has deteriorated substantially, becoming more negative over time. This divergence implies aggressive growth strategies possibly financed through current liabilities or reduced liquidity buffers. The significant negative working capital levels could pose risks related to short-term financial stability, but may also reflect operational models that rely on supplier financing or fast inventory turnover. Without working capital turnover ratios, full efficiency analysis is constrained, but the observed patterns highlight a trade-off between sales growth and working capital management that warrants attention.

Inventory turnover ratio

The inventory turnover ratio exhibits a gradual and consistent upward trend over the periods analyzed. Beginning around 1.41 in early 2018, it remains relatively stable through 2019, fluctuating slightly between 1.38 and 1.43. From 2020 onwards, there is a noticeable increase, reaching a peak of approximately 1.71 by the last quarter of 2021 before a mild decline to around 1.64 in the third quarter of 2022. This suggests an improvement in the efficiency with which inventory is being sold and replaced over time, indicating better inventory management or increased sales activity relative to inventory levels.

Average inventory processing period (days)

The average inventory processing period inversely correlates with the inventory turnover ratio, showing a general decreasing trend. Starting at approximately 258 days in early 2018, the days gradually increase to about 270 days by the third quarter of 2019. Following this peak, the period shortens significantly, dropping to around 213 days by the third quarter of 2021. The period remains relatively stable thereafter, fluctuating slightly around the low 220s days range through mid-2022. This reduction in the average processing period confirms improvements in inventory turnover and suggests faster movement of stock, enhancing operational efficiency and possibly cash flow.

Overall insights

The data reflects a positive trend in inventory management performance throughout the observed quarters. The improving inventory turnover ratio combined with a decreasing average inventory processing period indicates that inventory is moving faster and more efficiently. This could be the result of enhanced supply chain management, increased demand, or effective sales strategies. The period of 2019 to 2020 shows a transitional phase with some variability, but the trend towards improved efficiency becomes clear from 2020 onward. These dynamics likely contribute to improved working capital utilization and may positively impact the company’s operational profitability.

Receivables Turnover

The receivables turnover ratio exhibits some fluctuations over the periods observed. Starting in March 2018, the ratio is around 41.5, then it slightly decreases during 2018, reaching a low in September at approximately 38.4 before recovering somewhat in December to nearly 38.8. In 2019, the turnover ratio demonstrates more variability, with a notable increase in March to about 49.7, followed by a decline through mid-year and a partial rebound by year-end close to 44.6. Throughout 2020, the ratio remains relatively stable, maintaining a range between 43.9 and 47.2, indicating consistent management of receivables. The next two years show an overall upward trend peaking in March 2021 at 50.5, with slight declines thereafter but maintaining levels in the mid-40s range. By late 2022, the receivables turnover ratio trends downward slightly towards 41.6.

Average Receivable Collection Period

The collection period for receivables remains fairly steady through the periods, generally ranging between 7 and 9 days. Initially, in early 2018, the collection period is about 9 days, decreasing briefly to 7 days in March 2019. This lower collection period suggests improved efficiency at that time. For most of the subsequent periods up to 2022, the collection period stabilizes around 8 days, with occasional variations to 7 or 9 days. The limited fluctuation indicates consistent credit and collection policies over time.

General Observations

The receivables turnover and average collection period metrics together indicate relatively stable management of receivables with some moderate short-term variability. The turnover ratio's periodic peaks and troughs may reflect seasonality or operational cycles, yet the average collection days consistently remain at a low level, signifying efficient credit control. The data suggest that while receivables volume and collections frequency vary, the company maintains a disciplined approach to minimizing outstanding receivables.

Average Inventory Processing Period

The average inventory processing period demonstrates a generally stable trend from March 2017 through September 2019, fluctuating slightly between 257 and 261 days. Starting in March 2020, there is a noticeable increase reaching a peak of 270 days in June 2020. Following this peak, a consistent decline is observed through to September 2022, where the period shortens to 222 days. This suggests improvements in inventory management or faster turnover in more recent periods after a temporary elevation during 2020.

Average Receivable Collection Period

The average receivable collection period remains relatively stable over the analyzed timeframe, mostly fluctuating between 7 and 10 days. Early in the series, the period holds steady around 9 days, decreases to 7 days at several points notably during 2019 and 2021, before returning to around 8-9 days by mid-2022. This consistency indicates that the company maintains a steady approach to collecting receivables, with no major deterioration or improvement over time.

Operating Cycle

The operating cycle, which aggregates inventory processing and receivable collection periods, reflects the combined trends observed in the other two metrics. From March 2017 through late 2019, the operating cycle remains fairly constant, close to 266-273 days. In 2020, mirroring the inventory processing period, there is a rise, peaking at 278 days in March 2020. Subsequently, a marked reduction is seen, declining to about 220 days during the latter part of 2021, before a slight increase to 231 days through September 2022. This pattern suggests that overall operational efficiency improved following the 2020 peak, likely due to faster inventory processing and stable receivables collection.

Payables Turnover Ratio

The payables turnover ratio exhibits a relatively stable pattern over the periods from March 31, 2018, through September 30, 2022. Initially, the ratio hovers around 1.33 in early 2018, maintaining close values between 1.28 and 1.34 through to the end of 2021. Notably, there is a slight decline observed from 1.34 in December 2021 to 1.22 by September 2022, indicating a gradual reduction in the frequency of payables turnover in the most recent quarters.

Average Payables Payment Period (Days)

The average payables payment period, measured in days, shows a generally increasing trend over the observed timeframe. Starting at 274 days in the first quarter of 2018, the payment period extends to a peak of 299 days by September 2022. Minor fluctuations appear in intermediate periods, with the number of days varying between approximately 272 and 286 days for much of the 2018 to 2021 span. However, from mid-2022 onwards, the payment period lengthens notably, crossing the 290-day mark.

Overall Analysis

The juxtaposition of both metrics indicates a slight slowing in the turnover of payables, consistent with the elongation of the payment period. This suggests that the company has been progressively taking longer to settle its payables over time, especially pronounced in the latest reporting periods. Such behavior could reflect changes in payment policies, cash flow management strategies, or negotiation terms with suppliers. The stability prior to recent changes points to a consistent approach to payables management that began to adjust in the last year.

The data reflects key operational efficiency metrics over multiple quarters, focusing on inventory management, receivables collection, payables payment, and the overall cash conversion cycle. The trends provide insight into the company’s working capital management and liquidity dynamics over time.

Average Inventory Processing Period

The inventory processing period remains relatively stable from early 2017 to early 2019, hovering around 257-261 days. Starting mid-2019, a gradual decline is observed, reaching as low as 213 days by the third quarter of 2021. This downward trend indicates an improvement in inventory turnover efficiency, suggesting better inventory management or faster turnover.

Average Receivable Collection Period

The receivable collection period fluctuates slightly between 7 and 10 days throughout the observed quarters. There is no strong upward or downward trend, implying consistent credit and collection policies with minor variances, possibly due to seasonal effects or changes in customer payment behavior.

Average Payables Payment Period

The average payables payment period is fairly stable around the high 270s to upper 280s days, with a subtle increasing trend towards the end of the period, reaching nearly 300 days. This indicates a trend toward extending supplier payment terms or delayed payments, which could be used to improve cash flow.

Cash Conversion Cycle (CCC)

The cash conversion cycle shows marked improvement over time, starting with negative values around -7 days in early periods and accelerating to near -68 days by late 2022. A negative CCC indicates that the company collects cash from sales before it must pay its suppliers, reflecting strong operational cash flow management and enhanced liquidity. The steepening negative trend signals increased efficiency in managing cash flow, possibly through faster inventory turnover, consistent receivables collection, and extended payables periods.

Overall, the company demonstrates improved working capital management. Inventory turnover has accelerated notably from mid-2019 onward, while the receivables collection remains steady. Payables payment terms have lengthened gradually, allowing the company to fund operations with supplier credit longer. These factors combine to significantly shorten the cash conversion cycle, improving operational liquidity and enhancing the firm’s financial flexibility over the analyzed period.