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A Look at AutoZone’s Key Ratios ahead of 4Q17 Earnings Report

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Dec. 4 2020, Updated 10:42 a.m. ET

AutoZone’s 4Q17 report

So far in this series, we have covered analysts’ estimates for AutoZone’s fourth quarter earnings, margins, and revenues. Analyst estimates suggest the company could report positive year-over-year growth in its 4Q17 earnings and revenues, but its margins are expected to remain flat. Now, let’s move on by taking a quick look at some other key ratios for AutoZone.

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Net debt to EBITDA

At the end of the third quarter, AutoZone’s net-debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio stood at 5.16x. In the last quarter, this ratio improved significantly. At the end of 3Q17, the company’s net debt stood at $4.92 billion, slightly lower than the $4.94 billion in the previous quarter.

AutoZone’s latest net-debt-to-EBITDA ratio was much higher than that of its direct peer Advanced Auto Parts’ (AAP) 4.24x. High debt levels increase the risk profile of companies as debt is a contractual obligation that the company must fulfill regardless of market conditions. This is the reason why it’s important for investors to pay attention to companies’ leverage position.

Cash cycle ratio

In terms of cash conversion cycle ratio, AutoZone stands much ahead of its direct competitor AAP. At the end of the most recent quarter, AZO’s and AAP’s cash conversion cycle ratio stood at -8.3 and 115.2 days, respectively. AutoZone’s reported figure implies that the company receives the cash in its account much earlier than it has to pay suppliers and other parties. The cash conversion cycle also highly depends on efficient inventory management.

Ferrari (RACE) also maintains a negative cash conversion cycle, which means Ferrari receives cash much earlier than it needs to pay its suppliers. However, other legacy automakers (XLY) including Fiat Chrysler (FCAU), General Motors (GM), and Ford (F) have a high cash conversion cycle ratio unlike RACE.

In the next part, we’ll find out what analysts are recommending for AutoZone’s stock ahead of its 4Q17 earnings report.

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