Costco Wholesale Corp (COST)

Cash conversion cycle

		Sep 1, 2024	May 12, 2024	Feb 18, 2024	Nov 26, 2023	Sep 3, 2023	May 7, 2023	Feb 12, 2023	Nov 20, 2022	Aug 28, 2022	May 8, 2022	Feb 13, 2022	Nov 21, 2021	Aug 29, 2021	May 9, 2021	Feb 14, 2021	Nov 22, 2020	Aug 30, 2020	May 10, 2020	Feb 16, 2020	Nov 24, 2019
Days of inventory on hand (DOH)	days	27.75	25.98	25.88	27.63	25.89	26.12	25.89	30.34	29.79	42.95	42.20	45.50	40.25	28.29	29.30	32.54	27.70	26.40	29.39	35.81
Days of sales outstanding (DSO)	days	3.90	3.72	4.08	3.78	3.44	3.88	4.23	3.65	3.60	3.34	3.88	3.47	3.36	3.12	3.95	3.47	3.39	3.42	4.58	4.04
Number of days of payables	days	28.90	28.09	26.52	31.25	27.18	26.96	26.42	29.98	29.69	43.02	43.75	52.53	46.09	31.46	30.39	37.16	32.06	25.92	27.46	37.42
Cash conversion cycle	days	2.75	1.61	3.44	0.16	2.15	3.03	3.70	4.02	3.70	3.27	2.33	-3.56	-2.48	-0.05	2.86	-1.14	-0.97	3.89	6.51	2.43

September 1, 2024 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 27.75 + 3.90 – 28.90
= 2.75

The cash conversion cycle measures the time it takes for a company, in this case, Costco Wholesale Corp, to convert its investments in inventory and other resources into cash flows from sales. A shorter cash conversion cycle is generally favorable as it indicates that the company is efficiently managing its working capital.

Analyzing the historical data provided, we observe fluctuations in Costco's cash conversion cycle over the periods. For instance, on Sep 1, 2024, the cash conversion cycle was 2.75 days, indicating that Costco took approximately 2.75 days to convert its investments into cash flows. This value decreased to 1.61 days on May 12, 2024, suggesting improved efficiency in converting resources into cash during that period.

The ideal situation for Costco would be to have a consistent and low or even negative cash conversion cycle, signifying that the company is swiftly realizing cash from its operations. It's noteworthy that Costco experienced negative cash conversion cycles on several occasions, including Feb 13, 2022 (-3.56 days), Nov 21, 2021 (-2.48 days), and May 9, 2021 (-0.05 days). These negative values indicate that Costco was able to convert investments into cash before paying its obligations, which can be a sign of strong cash flow management.

However, there were also periods where Costco had longer cash conversion cycles, such as Nov 22, 2020 (6.51 days) and Feb 12, 2023 (3.70 days). A longer cash conversion cycle can suggest inefficiencies in managing inventory, accounts receivable, and accounts payable, which could tie up cash and impact the company's financial performance.

In conclusion, analyzing Costco Wholesale Corp's cash conversion cycle over the periods provides valuable insights into the company's working capital management and operational efficiency. Tracking these trends can help identify areas of improvement and assess the overall financial health of the company.