PriceSmart Inc (PSMT)

PriceSmart Inc's liquidity ratios have fluctuated over the past five years.

The current ratio measures the company's ability to meet short-term obligations with its current assets. PriceSmart's current ratio has ranged from 1.22 to 1.38 over the period, showing a generally adequate ability to cover short-term liabilities with current assets. However, the ratio has decreased slightly in the most recent year, indicating a potential decrease in liquidity compared to the prior year.

The quick ratio, which provides a more conservative measure of liquidity by excluding inventory from current assets, has shown greater variability, ranging from 0.36 to 0.63. This implies that PriceSmart may have had periods where it struggled to meet immediate liabilities without relying on selling inventory.

The cash ratio, which is the most conservative measure of liquidity as it only considers cash and cash equivalents, has followed a similar trend as the quick ratio, ranging from 0.33 to 0.61. This suggests that while PriceSmart's cash position has fluctuated, the company has maintained a decent level of liquid reserves relative to its current liabilities.

Overall, PriceSmart Inc's liquidity ratios indicate some variability in its ability to meet short-term obligations over the past five years. Monitoring these ratios closely can help assess the company's financial health and readiness to address any unforeseen liquidity challenges.

---

Additional liquidity measure

The cash conversion cycle for PriceSmart Inc has shown significant fluctuations over the past five years. In 2024, the company's cash conversion cycle increased to 26.44 days, more than doubling from the previous year. This suggests that the company took longer to convert its investments in inventory and other resources into cash during the most recent period.

In 2023, the cash conversion cycle was relatively lower at 13.23 days, indicating that the company was able to manage its working capital more efficiently compared to 2024. The significant increase in 2024 could be attributed to various factors such as changes in sales patterns, inventory management, or payment terms with suppliers and customers.

A notable outlier was observed in 2021 when the cash conversion cycle spiked to 41.05 days, significantly higher than the surrounding years. This suggests potential inefficiencies in working capital management during that year, leading to a longer period to convert investments into cash.

In 2020, PriceSmart Inc had a negative cash conversion cycle of -5.80 days, indicating that the company was able to generate cash from its operating cycle before having to pay suppliers. This can be a positive indicator of efficient cash management but may also signal aggressive vendor payment terms or inventory turnover.

Overall, fluctuations in the cash conversion cycle for PriceSmart Inc highlight the importance of monitoring working capital efficiency and potential areas for improvement in managing cash flow. A higher cash conversion cycle may indicate inefficiencies, while a negative cycle, like in 2020, may suggest aggressive working capital management strategies.