PriceSmart Inc (PSMT)

Short-term

Turnover ratios

The activity ratios provide insights into how effectively Pricesmart Inc. is managing its assets and liabilities to generate sales and revenues. Let's analyze the activity ratios for the past five years:

1. Inventory Turnover:
- Pricesmart Inc.'s inventory turnover has been relatively stable over the past five years, ranging from 7.29 to 8.97 times. This indicates that the company is managing its inventory efficiently, with higher turnovers suggesting effective inventory management.

2. Receivables Turnover:
- The receivables turnover ratio reflects a substantial fluctuation over the years, from 253.11 to 326.57 times. This implies that the company has been efficient in collecting sales on credit, with a higher turnover indicating faster collections.

3. Payables Turnover:
- The payables turnover ratio has shown consistency, ranging from 7.44 to 9.42 times. This suggests that Pricesmart Inc. has effectively managed its payment to suppliers and has been able to maintain a stable turnover rate.

4. Working Capital Turnover:
- The working capital turnover has declined over the years, from 38.18 to 18.18 times, indicating a decrease in the utilization of working capital to generate sales. However, a higher turnover rate indicates more efficient utilization of working capital for generating revenue.

In summary, Pricesmart Inc. has demonstrated efficient management of its inventory, receivables, and payables, as indicated by the consistent and, in some cases, increasing turnover ratios. However, the declining trend in working capital turnover may warrant further investigation to understand the changing dynamics of working capital utilization in driving sales.

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Average number of days

To analyze Pricesmart Inc.'s activity ratios, we will be using the Days of Inventory on Hand (DOH), Days of Sales Outstanding (DSO), and Number of Days of Payables. These ratios help to assess how efficiently the company manages its inventory, collects its receivables, and pays its payables.

1. Days of Inventory on Hand (DOH): This ratio indicates the average number of days it takes for Pricesmart Inc. to sell its inventory. A decrease in this ratio is generally favorable as it implies the company is selling inventory more quickly. From 2019 to 2023, Pricesmart Inc.'s DOH decreased, indicating an improvement in the management of inventory, with the lowest being in 2020 at 40.71 days and increasing slightly to 47.11 days in 2023. Overall, the company's inventory turnover seems relatively stable over the years, with only minor fluctuations.

2. Days of Sales Outstanding (DSO): This ratio measures the average number of days it takes for Pricesmart Inc. to collect its accounts receivable. A decrease in this ratio is favorable as it suggests faster collection of receivables. The DSO for Pricesmart Inc. has fluctuated over the years, reaching its peak at 1.48 days in 2023. This may indicate a potential deterioration in the efficiency of collecting receivables compared to previous years.

3. Number of Days of Payables: This ratio assesses how long Pricesmart Inc. takes to pay its suppliers. A higher number of days indicates the company is taking longer to pay its payables. The number of days of payables has increased from 38.75 days in 2019 to 45.29 days in 2023. This suggests that the company is taking longer to pay its suppliers, which could be indicative of potential financial strain or a change in payment policies.

In summary, Pricesmart Inc.'s activity ratios show a relatively stable trend in the management of inventory, with a slight increase in the number of days of inventory on hand. However, there are indications of potential challenges in collecting receivables, as reflected in the higher days of sales outstanding. Additionally, the longer number of days of payables suggests a change in payment policies or potential financial pressures. Further analysis combined with other financial metrics is recommended to gain a comprehensive understanding of Pricesmart Inc.'s financial performance and operational efficiency.

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Long-term

The long-term activity ratios of Pricesmart Inc. provide insights into how effectively the company utilizes its assets to generate sales.

Fixed Asset Turnover:
The fixed asset turnover ratio measures how efficiently a company generates sales from its investment in fixed assets. Pricesmart Inc.'s fixed asset turnover has shown a decreasing trend over the past five years, declining from 5.37 in 2022 to 5.19 in 2023. This indicates that the company is generating slightly fewer sales from its investment in fixed assets. While the ratio is still relatively high, it is important for the company to monitor whether this trend continues and take appropriate actions, such as optimizing the utilization of its fixed assets, to improve efficiency.

Total Asset Turnover:
The total asset turnover ratio measures the efficiency of a company in generating sales from its total assets. Pricesmart Inc.'s total asset turnover has fluctuated over the past five years, peaking at 2.49 in 2019 and declining to 2.20 in 2023. The decrease in total asset turnover indicates that the company may be less efficient in generating sales from its total assets, including both fixed and current assets. This trend suggests that Pricesmart Inc. may need to review its asset management strategies to improve overall asset utilization and generate higher sales from its asset base.

In conclusion, while Pricesmart Inc. has maintained relatively high turnover ratios, the declining trends in both fixed asset turnover and total asset turnover indicate potential inefficiencies in asset utilization. It is essential for the company to closely assess its asset management strategies to ensure optimum utilization and enhance sales generation from its assets in the long term.