PriceSmart Inc (PSMT)

Inventory turnover

		Aug 31, 2024	Aug 31, 2023	Aug 31, 2022	Aug 31, 2021	Aug 31, 2020
Cost of revenue	US$ in thousands	622,842	565,367	512,959	487,041	3,207,140
Inventory	US$ in thousands	528,678	471,407	464,411	389,711	309,509
Inventory turnover		1.18	1.20	1.10	1.25	10.36

August 31, 2024 calculation

Inventory turnover = Cost of revenue ÷ Inventory
= $622,842K ÷ $528,678K
= 1.18

Inventory turnover measures how many times a company's inventory is sold and replaced over a period. In the case of PriceSmart Inc, we observe that its inventory turnover has varied over the past five years. The trend shows a slight fluctuation, ranging from a low of 1.10 in 2022 to a high of 10.36 in 2020, indicating substantial changes in inventory management efficiency.

A lower inventory turnover ratio, such as seen in 2022, suggests that the company is holding onto its inventory for a longer period before selling, which may tie up capital and increase the risk of inventory becoming obsolete or unsellable. On the other hand, a significantly high ratio, as in 2020, could indicate either a sudden surge in sales, aggressive inventory management strategies, or possible data recording anomalies.

It is essential for PriceSmart Inc to maintain a balance in inventory turnover, ensuring that inventory levels are optimized to meet demand without excess or shortages. Monitoring this ratio over time can provide insights into the effectiveness of inventory management practices and help identify areas for improvement.