PriceSmart Inc (PSMT)

Cash conversion cycle

		Aug 31, 2024	May 31, 2024	Feb 29, 2024	Nov 30, 2023	Aug 31, 2023	May 31, 2023	Feb 28, 2023	Nov 30, 2022	Aug 31, 2022	May 31, 2022	Feb 28, 2022	Nov 30, 2021	Aug 31, 2021	May 31, 2021	Feb 28, 2021	Nov 30, 2020	Aug 31, 2020	May 31, 2020	Feb 29, 2020	Nov 30, 2019
Days of inventory on hand (DOH)	days	309.82	308.34	309.49	333.28	304.34	294.03	305.68	357.98	330.46	331.43	340.98	367.45	292.06	119.38	122.64	136.27	113.83	99.56	119.67	145.39
Days of sales outstanding (DSO)	days	1.41	1.36	1.56	1.43	1.49	1.28	1.41	1.65	1.20	1.34	1.43	1.53	1.25	1.27	1.27	1.63	1.44	1.20	1.20	1.15
Number of days of payables	days	284.78	293.26	312.44	328.67	292.60	277.17	276.74	313.42	290.61	282.95	276.07	338.30	291.37	120.92	121.41	140.26	137.24	104.85	104.14	123.10
Cash conversion cycle	days	26.44	16.44	-1.39	6.04	13.22	18.13	30.35	46.21	41.05	49.82	66.35	30.67	1.94	-0.28	2.50	-2.35	-21.97	-4.09	16.73	23.44

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 measures how long it takes for a company to convert its investments in inventory and other resources into cash inflows from sales. A shorter cash conversion cycle indicates more efficient management of working capital.

Analyzing the data for PriceSmart Inc over the past few quarters, we can see fluctuations in the cash conversion cycle. In some periods, such as May 31, 2024, Nov 30, 2023, and May 31, 2023, the company managed to efficiently convert its investments into cash, resulting in a negative cash conversion cycle. This suggests that the company is able to collect cash from customers before paying its suppliers, thereby freeing up cash for other uses.

In contrast, during periods like Aug 31, 2022, and Feb 28, 2022, the cash conversion cycle was significantly longer, indicating potential inefficiencies in managing working capital. A longer cash conversion cycle may be a result of slower collections from customers or excessive inventory holding.

Overall, PriceSmart Inc should aim to maintain a stable and ideally shorter cash conversion cycle to optimize its working capital management and enhance its financial performance. Monitoring and improving this metric can help the company ensure sufficient liquidity and operational efficiency.