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Comparing AutoZone’s Key Ratios ahead of Fiscal Q3 Earnings

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AutoZone’s Q3 2018 results

So far in this series, we have covered analysts’ estimates for AutoZone’s third-quarter earnings, revenue, and profit margins. Analyst estimates suggest AZO could report positive year-over-year growth in its Q3 2018 earnings and revenues, but its profit margins might disappoint. Now, let’s move on by taking a look at some of the company’s key metrics and ratios before it announces fiscal Q3 2018 results on May 22.

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Comparing net-debt-to-EBITDA

At the end of fiscal Q2 2018, AutoZone’s net-debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio stood at 9.85x, which reflected a rise from 8.70x at the end of the previous quarter. These ratios were calculated based on AZO’s adjusted EBITDA for the last two quarters. At the end of Q2 2018, the company’s total debt stood at $4.8 billion, higher than the $4.7 billion at the end of fiscal Q1 2018.

AutoZone’s latest net-debt-to-EBITDA ratio was much higher than Advanced Auto Parts’ (AAP) 4.10x and O’Reilly Auto Parts’ (ORLY) 6.18x. Note that significantly high debt levels increase the risk profile of companies, as debt is a contractual obligation that the company has to fulfill irrespective of market conditions. This is the reason why it’s important for investors to pay attention to an auto company’s leverage position.

Comparing cash cycle

In terms of cash-conversion-cycle ratio, AutoZone continues to be much ahead of its direct competitors Advance Auto Parts and O’Reilly. At the end of the most recently reported quarter, the cash-conversion-cycle ratio of AZO, AAP, and ORLY stood at -12.3, 119.3, and -2.9 days, respectively. AZO’s ratio imply that AutoZone receives cash in hand much earlier than it has to pay it to suppliers and other parties. The cash-conversion-cycle also highly depends on efficiently managing the inventory levels.

In the auto industry, Ferrari (RACE) also maintains a negative cash-conversion cycle. However, other legacy automakers (VCR) including Fiat Chrysler (FCAU), General Motors (GM), and Ford (F) have a high cash cycle ratio unlike Ferrari.

Next, we’ll find out what analysts are recommending for AutoZone’s stock ahead of its fiscal Q3 2018 earnings event.

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