Costco Wholesale Corp (COST)

Sure, let's analyze the liquidity ratios of Costco Wholesale Corp based on the provided data.

1. Current Ratio:
The current ratio measures the company's ability to pay its short-term obligations with its short-term assets. A ratio of 1 or higher is generally considered healthy. Costco's current ratio has slightly fluctuated over the last five years, ranging from 1.00 to 1.13. This indicates that the company has generally maintained a level of current assets sufficient to cover its current liabilities.

2. Quick Ratio:
The quick ratio, also known as the acid-test ratio, is a more stringent measure of liquidity as it excludes inventory from current assets. Costco's quick ratio has varied between 0.46 and 0.64 over the past five years. This indicates that the company may have had some difficulty in covering its short-term liabilities with its most liquid assets, especially in the years where the ratio was at the lower end of the range.

3. Cash Ratio:
The cash ratio is the most conservative measure of liquidity, as it only considers the most liquid current assets, which are cash and cash equivalents. Costco's cash ratio has varied from 0.39 to 0.58 over the same period. This suggests that the company has generally maintained a reasonable level of cash and cash equivalents to cover its short-term obligations.

In summary, while Costco's current ratio has generally been above 1, indicating the ability to cover short-term liabilities, the quick and cash ratios have been more volatile. The company may want to monitor and possibly improve its quick and cash ratios to ensure it maintains a healthy level of liquidity, especially during periods of economic uncertainty.

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See also:

Costco Wholesale Corp Liquidity Ratios

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Additional liquidity measure

The cash conversion cycle (CCC) measures the length of time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. A shorter CCC indicates more efficient management of working capital and quicker turnover of assets.

Based on the data provided, Costco Wholesale Corp's cash conversion cycle has fluctuated over the past five years.

In the most recent fiscal year (ended September 3, 2023), Costco's cash conversion cycle decreased significantly to 2.01 days. This suggests that the company is efficiently managing its working capital and converting inventory into cash more quickly compared to the previous year.

In the prior fiscal year (ended August 28, 2022), the cash conversion cycle was 3.71 days, indicating a longer period for inventory conversion into sales and cash. This increase may signal a less efficient use of working capital and slower turnover of assets compared to the year before.

Interestingly, in the fiscal years ended August 29, 2021, and August 30, 2020, Costco exhibited negative cash conversion cycles of -1.05 and -1.47 days, respectively. This indicates that Costco was able to collect cash from sales before paying its suppliers for the inventory, which is an extremely efficient working capital management strategy and advantageous for the company.

However, the fiscal year ended September 1, 2019, saw Costco's cash conversion cycle increase to 2.89 days, implying a less efficient management of working capital and a longer turnover of assets compared to the subsequent years.

Overall, Costco's fluctuating cash conversion cycle over the past five years suggests variations in the efficiency of its working capital management and the speed at which it converts inventory into cash. It would be important to analyze the underlying factors driving these fluctuations to assess the effectiveness of Costco's operations and financial management.