PriceSmart Inc (PSMT)

Cash conversion cycle

		Aug 31, 2024	Aug 31, 2023	Aug 31, 2022	Aug 31, 2021	Aug 31, 2020
Days of inventory on hand (DOH)	days	309.82	304.34	330.46	292.06	35.22
Days of sales outstanding (DSO)	days	1.41	1.49	1.20	1.25	1.44
Number of days of payables	days	284.78	292.60	290.61	291.37	42.47
Cash conversion cycle	days	26.44	13.23	41.05	1.94	-5.80

August 31, 2024 calculation

Cash conversion cycle = DOH + DSO – Number of days of payables
= 309.82 + 1.41 – 284.78
= 26.44

The cash conversion cycle of PriceSmart Inc has exhibited fluctuations over the past five years. In 2024, the company's cash conversion cycle increased to 26.44 days, indicating that it took longer for PriceSmart to convert its inventory and accounts receivable into cash during that period. This represents a significant increase compared to the previous year's cycle of 13.23 days.

In 2023, the cash conversion cycle was relatively low at 13.23 days, suggesting that the company efficiently managed its working capital and was able to convert its resources into cash more quickly. However, in 2022, the cycle increased to 41.05 days, indicating a potential issue with the management of inventory and accounts receivable processes, which led to a longer cash conversion cycle.

The most notable improvement was seen in 2021 when the cash conversion cycle was only 1.94 days, reflecting highly efficient working capital management and a swift conversion of resources into cash. Additionally, in 2020, the company had a negative cash conversion cycle of -5.80 days, which could suggest that PriceSmart was able to generate cash before paying its suppliers, indicating strong liquidity and efficiency in operations.

Overall, fluctuations in PriceSmart's cash conversion cycle over the five-year period highlight the importance of efficient working capital management in maximizing cash flow and operational effectiveness.