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How AutoZone’s Debt Position Compares

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Net-debt-to-EBITDA comparison

In the fiscal third quarter, AutoZone’s net-debt-to-EBITDA ratio was 7.6x, marking a fall YoY (year-over-year) from 8.1x and sequentially from 9.9x. The company’s total debt fell 3.8% YoY to $5.0 billion from $5.2 billion.

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Peer comparison

Despite recent improvements, AutoZone’s latest net-debt-to-EBITDA ratio was much higher than Advanced Auto Parts’ (AAP) 1.4x and O’Reilly Auto Parts’ (ORLY) 6.2x. High debt levels increase companies’ risk profile as debt is a contractual obligation companies must fulfil irrespective of market conditions, which is why it’s important for investors to pay attention to auto companies’ leverage.

Comparing cash-conversion-cycle ratios

At the end of the most recent reported quarter, AZO’s, AAP’s, and ORLY’s cash-conversion-cycle ratios were -11.8, 115.3, and -2.9, respectively, placing AutoZone ahead of peers. These figures imply that AutoZone receives cash in hand much earlier than it has to pay suppliers and other parties. Cash-conversion-cycle ratios also depend on inventory management.

In the auto industry, Italian luxury carmaker Ferrari (RACE) has a negative cash-conversion-cycle ratio, whereas legacy automakers (FXD) Fiat Chrysler (FCAU), General Motors (GM), and Ford (F) have high ratios. Next, we’ll find out what analysts expect for AutoZone’s fourth fiscal quarter.

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