PriceSmart Inc (PSMT)

Days of inventory on hand (DOH)

		Aug 31, 2023	Aug 31, 2022	Aug 31, 2021	Aug 31, 2020	Aug 31, 2019
Inventory turnover		1.20	1.10	1.25	10.36	9.38
DOH	days	304.34	330.46	292.06	35.22	38.91

August 31, 2023 calculation

DOH = 365 ÷ Inventory turnover
= 365 ÷ 1.20
= 304.34

The Days of Inventory on Hand (DOH) ratio measures the average number of days it takes for a company to sell its entire inventory. A lower DOH value indicates efficient inventory management, while a higher value may signify slower inventory turnover.

Based on the data provided for Pricesmart Inc., we can observe fluctuations in the DOH ratio over the past five years. In 2019, the DOH stood at 44.85 days, indicating that on average, it took approximately 44.85 days for Pricesmart to sell its entire inventory. This was followed by a decrease in 2020 to 40.71 days, reflecting improved inventory turnover efficiency.

However, in the subsequent years, the DOH ratio increased, reaching 47.81 days in 2021 and 50.08 days in 2022, suggesting a potential slowdown in inventory turnover. It is noteworthy that the DOH decreased slightly in 2023 to 47.11 days, yet it remains higher compared to the level in 2020.

A rising DOH ratio can lead to higher carrying costs, obsolescence, and tied-up capital in inventory. Therefore, it is crucial for Pricesmart Inc. to address the factors contributing to the increased DOH and reevaluate its inventory management strategies to enhance efficiency and reduce the holding period of inventory.

In conclusion, the trend in Pricesmart Inc.'s DOH ratio highlights fluctuations in inventory management efficiency over the past five years, necessitating a thorough review of the company's inventory control and sales strategies to optimize working capital and improve overall operational performance.