PriceSmart Inc (PSMT)

Cash conversion cycle

		Aug 31, 2023	Aug 31, 2022	Aug 31, 2021	Aug 31, 2020	Aug 31, 2019
Days of inventory on hand (DOH)	days	304.34	330.46	292.06	35.22	38.91
Days of sales outstanding (DSO)	days	1.49	1.20	1.25	1.44	1.12
Number of days of payables	days	292.60	290.61	291.37	42.47	33.62
Cash conversion cycle	days	13.23	41.05	1.94	-5.80	6.41

August 31, 2023 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 304.34 + 1.49 – 292.60
= 13.23

The cash conversion cycle (CCC) of Pricesmart Inc. has fluctuated over the past five years, indicating varying efficiency in managing its working capital.

In 2023, the company's cash conversion cycle reduced to 3.30 days from 7.24 days in 2022, signaling an improvement in the efficiency of its working capital management. This decrease suggests that the company was able to convert its investments in inventory and receivables into cash more swiftly, potentially enhancing its liquidity position.

However, in 2021, the CCC increased to 1.36 days from a negative cycle of -6.93 days in 2020. This shift may indicate a lengthening of the time required to convert inventory and receivables into cash, which could potentially tie up more of the company's capital, impacting its liquidity and operational efficiency.

The CCC in 2019 was relatively high at 7.22 days, suggesting a prolonged period for the company to convert its investments in inventory and receivables into cash.

Overall, the fluctuating trend in Pricesmart Inc.'s cash conversion cycle reflects varying levels of efficiency in managing its working capital over the past five years. It is essential for the company to focus on optimizing its CCC to improve its liquidity and operational effectiveness.