CarMax, Inc. (KMX) Cash Flow Statement

The magnitude of that conversion gap is not evidence of superior cash economics in a dealership model; D&A of $829M and stock-based compensation of $309M explain a meaningful portion of the $2,257M cumulative excess, while working capital actually acted as a $945M net drag over the window. The -0.77 OCF/NI reading in 2025Q1 and 20.14 in 2026Q3 point to the same underlying issue identified in the income statement: reported earnings appear to move on unit volume and pricing, while cash moves on inventory timing. Investors should treat the headline OCF/NI multiple as a timing artifact rather than a signal of earnings quality.

Cumulative FCF of approximately $2.11B across the ten-quarter window looks solid in isolation, but three of the ten quarters posted negative FCF, including the -$687M print in 2026Q4 that coincides with the operating loss identified in the income statement. That clustering suggests FCF inflection is being driven by the same demand and pricing cycle as operating income, not by independent cash generation. The 10.2% FCF margin in 2027Q2, while a marked improvement on 2027Q1's -1.1%, still reflects an inventory release rather than a structurally higher margin, and may not be repeatable if replenishment spending normalizes.

The -$493.5M working-capital outflow in 2025Q1 and the -$342.9M outflow in 2025Q3 show that inventory purchases were consuming cash well ahead of the revenue recovery, which is consistent with a dealer rebuilding lot depth ahead of demand. The subsequent $497.8M release in 2027Q2 implies the rebuild has largely been worked through, and that release is what pushed reported OCF to $882.9M in the latest quarter. This pattern means the operating cash trajectory is likely to be far more volatile than the income statement, and the near-term question is whether inventory rebuilds re-engage and absorb cash once more.

The capex intensity is low in absolute percentage terms because the true productive asset for this business is inventory, not depreciable property and equipment, and inventory spending sits inside working capital rather than capex. That distinction matters: when capex of $77.1M in 2027Q2 fell below D&A of $95.2M while working capital released $497.8M, the cash benefit was not evidence of underinvestment being corrected but of inventory rotating out. The roughly 1.6x cumulative capex-to-D&A ratio suggests the fixed asset base is being modestly expanded rather than simply replaced, consistent with a company investing selectively in store footprint.

Because working capital consumed cash on a cumulative basis, the cash-earnings gap is entirely attributable to non-cash addbacks and residual items, which weakens the case that the divergence signals superior cash generation. In a business where inventory is the dominant asset, a negative cumulative working-capital contribution suggests CarMax was rebuilding lot inventory across much of the window, and the recent release of that inventory flatters the trailing cash picture. The divergence is therefore more consistent with a business absorbing inventory investment than with one converting earnings into cash more efficiently than peers.