Copart (CPRT) FY2025 — $4.8B Cash, Zero Debt, Z-Score 17.96

Grade: C — Some Red Flags, Investigate

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2025-09-26, FY ended July 31, 2025) + Yahoo Finance

Auditor: Ernst & Young LLP — Unqualified opinion (zero critical audit matters)

One-line verdict: Copart should not be flagged for elimination, but the persistent AR divergence warrants monitoring. The company reported $1.55B net income on $4.65B revenue, generated $1.8B operating cash flow against virtually zero debt ($104M), and sits on $4.8B in cash and HTM securities. The M-Score of -2.55 is comfortably clean. Ernst & Young identified zero critical audit matters — a rarity that reflects the simplicity of the auction business model. The single red flag is accounts receivable outpacing revenue for two consecutive years, though DSO only crept from 15 to 16 days. The real story from this 10-K is the hurricane effect: $56 million in one-time CAT costs from Hurricanes Helene and Milton inflated facility operations expenses, while the volume surge from flood-damaged vehicles drove the 11.4% service revenue growth. Copart's books are clean — its risk is weather-driven earnings volatility and rising G&A from system implementations and sales force expansion.

The Salvage Auction Model: Capital-Light Cash Generation

Copart is the world's leading online vehicle auction platform, operating in the U.S., U.K., Germany, Brazil, Canada, U.A.E., Spain, Finland, Oman, Ireland, and Bahrain. Per the 10-K, 81% of vehicles processed in FY2025 came from insurance companies — vehicles deemed total losses. The company acts primarily as an agent, earning fees on each transaction rather than purchasing inventory.

This model produces exceptional economics. From the income statement:

Service revenues — the high-margin, asset-light core — grew 11.4% and now represent 85% of total revenue, up from 83% two years ago. Vehicle sales (where Copart acts as principal, primarily in the U.K.) were flat at $678M. Per the MD&A, the service revenue growth was "driven primarily by an increase in revenue per car and an increase in volume" in both the U.S. and internationally.

Cash Flow: Clean and Accelerating

From the consolidated cash flow statement:

CFFO/NI of 1.16 means the company collects more cash than it reports in earnings — the hallmark of a real business. The cash flow statement shows depreciation and amortization of $218M (up from $190M) and stock-based compensation of $38M as the major non-cash additions. Working capital changes were modest: accounts receivable consumed $34M (vs. $145M in FY2024), while accounts payable contributed $70M.

The interest income line tells a story: Copart earned $179M in net interest income in FY2025, up from $66M in FY2023. The balance sheet shows $2.8B in cash and $2.0B in held-to-maturity securities. This company has so much excess cash that interest income alone adds nearly $0.19 per diluted share.

Income taxes paid were $409M on $1.55B net income. The effective tax rate was 18.3%, favorably impacted by "$55.0 million tax benefit related to the Foreign Derived Intangible Income FDII deduction and $36.7 million in excess tax benefits from the exercise of employee stock options," per the MD&A.

The Hurricane Effect

The 10-K explicitly ties FY2025 results to Hurricanes Helene and Milton. The MD&A discloses "one time CAT costs of $56 million associated with Hurricanes Helene and Milton" within facility operations expenses. These costs related to "subhaul, labor costs incurred from overtime, increased security costs, and increased travel and lodging."

Facility operations expenses rose 13.7% ($234M) year-over-year vs. service revenue growth of 11.4%. Excluding the $56M CAT costs, the increase would have been approximately $178M, or 10.4% — much closer to revenue growth. Per the 10-K, the company "mobilized our people, and engaged with a multitude of service providers to timely retrieve, store, and remarket tens of thousands of flood-damaged vehicles in South Florida."

This is the essential duality of Copart's business: catastrophic weather events are simultaneously a growth driver (volume) and a margin headwind (one-time costs). Investors need to understand that Copart's revenue and earnings will be lumpy based on hurricane seasons.

Balance Sheet: A Fortress

From the consolidated balance sheet:

Copart carries $4.8B in liquid assets against $104M in total debt. Debt/EBITDA is 0.05x — effectively zero leverage. Goodwill of $518M is only 6% of equity and relates primarily to the Purple Wave acquisition in October 2023. The company has no revolving credit facility borrowings; the 10-K discloses a $900M credit agreement that went unused.

Retained earnings grew from $6.5B to $8.1B — the company retains all earnings (no dividends) and issued no shares for acquisitions. This is organic compounding in its purest form.

The 18-Point Screening

Revenue Quality

A2 is the sole red flag. The balance sheet shows accounts receivable of $763M (FY2025) vs. $786M (FY2024), but the FY2023 figure was $641M. So AR grew 22.6% from FY2023 to FY2024 while revenue grew 9.5%. The 10-K discloses that accounts receivable consists of advance charges receivable (costs incurred on behalf of sellers awaiting reimbursement), trade receivables, and other receivables. The AR fluctuations likely reflect the timing of insurance company settlements following hurricane events. DSO of 16 days is exceptionally low and barely moved — this flag is technical, not structural.

Expense Quality

G&A surge deserves attention. General and administrative expenses rose 20.2% ($67.7M) year-over-year, driven by "increases in third party outside services (including legal, compliance, and system implementations), labor costs (as a result of investment in the business and the expansion of our sales force), facility costs and travel." At 9% of revenue (up from 8%), this remains manageable but the pace of increase — double the revenue growth rate — should be monitored.

Cash Flow Quality

Cash quality is pristine. The accruals ratio of -2.5% means cash exceeds reported earnings by a comfortable margin. FCF/NI of 0.79 reflects the substantial CapEx investment in land and facilities.

Balance Sheet

Acquisition Risk

Manipulation Score

All M-Score components are benign: DSRI 1.055, GMI 0.996, AQI 0.743, SGI 1.097, DEPI 0.982, SGAI 1.096, TATA -0.025, LVGI 0.908. The low AQI (0.743) confirms that asset quality is improving — driven by the cash and securities buildup.

Key Risks from the 10-K

1. Insurance Company Concentration

The filing states: "Although no single customer accounted for more than 10% of our consolidated revenues for fiscal 2025, 2024, or 2023, a limited number of vehicle sellers historically have collectively accounted for a substantial portion of our revenues." The risk factor warns that "vehicle sellers have terminated agreements with us in the past in particular markets" and "there can be no assurance that our existing agreements will not be canceled." A reduction in vehicles from a significant insurance company seller "could have a material adverse effect on our consolidated results of operations and financial position."

2. Weather Dependence

Total loss frequency — the key volume driver — is tied to catastrophic weather events. The 10-K discloses that Copart mobilized for "tens of thousands of flood-damaged vehicles" after Hurricanes Helene and Milton. While this drove FY2025 growth, a quiet hurricane season would reduce volumes. The filing acknowledges that "in the near term changes in used car prices and repair cost are inversely related, but may impact total loss frequency and thereby affect our growth rate."

3. International Expansion Risks

The filing dedicates substantial space to international risk: "Acquisitions or other strategies to expand our operations outside of the U.S. pose substantial risks and uncertainties." Copart operates in 11 countries and states it "continues to evaluate acquisitions and other opportunities outside of the U.S." The company plans to "ultimately deploy our proprietary auction technologies at all of our foreign operations" but "cannot predict whether this deployment will be successful."

4. Used Car Price Sensitivity

Per the MD&A, revenue is "impacted by several factors, including total loss frequency and the average vehicle auction selling price." The filing notes that "over the past 30 years, we believe there has been an increase in overall growth in the salvage market driven by an increase in total loss frequency." However, "the average age of cars on the road has continued to increase, growing from 11.1 years in 2012" to over 14 years, which means more vehicles are reaching the total loss threshold.

Summary

Grade: C. Should not be flagged for elimination, but the AR divergence warrants one more year of monitoring.

Copart is a structurally exceptional business: zero leverage, 45% gross margins, 33% net margins, CFFO/NI consistently above 1.0, zero goodwill risk, and no critical audit matters. The M-Score of -2.55 is clean. The Altman Z-Score of 17.96 places it in fortress territory.

The sole quantitative flag — AR outpacing revenue for two consecutive years — is technically a red flag in our screening framework, but the context is benign: DSO only rose one day (to 16 days), and the AR composition includes advance charges that fluctuate with hurricane-driven volume spikes. The 20.2% surge in G&A expenses is a secondary concern, reflecting investments in systems, compliance, and sales force expansion.

The qualitative risks are weather-driven earnings volatility, insurance company concentration, and international expansion execution. None of these threaten the books; they threaten the growth rate.

**Disclaimer**: This report is based on Copart's FY2025 10-K filed with SEC EDGAR on September 26, 2025. This is NOT investment advice.

Data: SEC EDGAR 10-K + Yahoo Finance

Auditor: Ernst & Young LLP (Unqualified opinion, 0 critical audit matters)

Fiscal year ended: July 31, 2025