Costco Wholesale Corp (COST)
Cash conversion cycle
| Sep 3, 2023 | Aug 28, 2022 | Aug 29, 2021 | Aug 30, 2020 | Sep 1, 2019 | ||
|---|---|---|---|---|---|---|
| Days of inventory on hand (DOH) | days | 25.93 | 29.79 | 27.41 | 27.69 | 30.53 |
| Days of sales outstanding (DSO) | days | 3.44 | 3.60 | 3.36 | 3.39 | 3.67 |
| Number of days of payables | days | 27.23 | 29.69 | 31.39 | 32.06 | 31.29 |
| Cash conversion cycle | days | 2.15 | 3.70 | -0.62 | -0.97 | 2.91 |
September 3, 2023 calculation
Cash conversion cycle = DOH + DSO – Number of days of payables
= 25.93 + 3.44 – 27.23
= 2.15
The cash conversion cycle is a measure of how long it takes for a company to convert its investments in inventory and accounts receivable into cash. A shorter cash conversion cycle generally indicates better efficiency in managing working capital.
In the case of Costco Wholesale Corp, the cash conversion cycle has fluctuated over the years. As of Sep 3, 2023, the company's cash conversion cycle stands at 2.01 days, indicating that it takes approximately 2.01 days for Costco to convert its investments in inventory and accounts receivable into cash.
Comparing this to previous years, we see that Costco has made significant improvements in its cash conversion cycle, particularly when compared to the negative cash conversion cycles in 2021 and 2020. The negative cash conversion cycles suggest that Costco was able to convert its investments into cash before having to pay its suppliers, which is a positive sign for the company's liquidity and working capital management.
Overall, the recent improvement in Costco's cash conversion cycle indicates a more efficient management of working capital, potentially leading to better cash flow and liquidity for the company.
Peer comparison
Sep 3, 2023