Costco Wholesale Corp. (NASDAQ:COST)

The financial data over the six-year period reflects notable fluctuations and trends in the turnover ratios and operating cycle components.

Inventory Turnover

The inventory turnover ratio remained relatively stable, fluctuating between approximately 11.13 and 12.77. It showed a slight increase in 2023 reaching 12.77 but then decreased to 11.92 in 2024, indicating moderate variability in how efficiently inventory was managed.

Receivables Turnover

This ratio experienced a peak in 2021 at 106.52, reflecting strong receivables collection during that year. However, it declined noticeably in 2024 to 91.74, the lowest during the period, which may imply a slowdown in the collection efficiency or changes in credit policies.

Payables Turnover

The payables turnover showed moderate variability, with a low of 10.23 in 2020 and a high of 12.16 in 2023. The general pattern suggests some variability in payment terms or cash management strategies, with a slight deceleration in 2024 to 11.45.

Working Capital Turnover

The working capital turnover exhibited extreme volatility, peaking dramatically in 2021 at 3000.81, a value significantly beyond the range in other years. This anomaly could be due to extraordinary circumstances or data irregularities. Otherwise, turnover values were far lower but fluctuating broadly, with no data available for 2024.

Average Inventory Processing Period

Inventory days remained close to a 30-31 day average, showing a small increase in 2022 to 33 days followed by a decline to 29 days in 2023 before returning to 31 days in 2024. This suggests stable inventory holding periods with slight short-term fluctuations.

Average Receivable Collection Period

This metric was very consistent, ranging narrowly between 3 and 4 days, indicating stable and efficient collection policies over the entire period.

Operating Cycle

The operating cycle hovered around 33 to 37 days, with a minor peak in 2022 at 37 days. The slight increase contrasts with previous years, suggesting minor extensions in the overall time from inventory acquisition through receivable collection.

Average Payables Payment Period

The payables payment period varied from 30 to 36 days, peaking in 2020 at 36 days and shortening to 30 days in 2023 before moving back to 32 days in 2024. This indicates some variability in the timing of payables settlement possibly reflecting changing supplier or internal payment terms.

Cash Conversion Cycle

The cash conversion cycle showed modest variations, fluctuating between -2 and 4 days. Negative values in 2020 and 2021 imply that the company was able to delay payments to suppliers beyond the time it took to convert inventory into receivables, effectively benefiting cash flow during those years. The cycle settled back to 3 days by 2024, indicating a balanced cash flow conversion timeframe.

In summary, the overall operational efficiency in inventory, receivables, and payables management demonstrated relative stability with some short-term fluctuations. The unusually high working capital turnover in 2021 stands out as an outlier in the dataset. The company's cash conversion cycle remained low throughout, reflecting effective management of cash flow timing, despite minor year-to-year variations.

Merchandise Costs

Merchandise costs have demonstrated a consistent upward trend over the six-year period. Starting at approximately 132.9 billion USD in fiscal year 2019, the costs escalated each year, reaching about 222.4 billion USD by fiscal year 2024. This represents an overall increase of roughly 67%, indicating heightened purchasing or operational scale expansion in merchandise sourcing.

Merchandise Inventories

Inventory levels also increased during the period, rising from approximately 11.4 billion USD in 2019 to around 18.6 billion USD in 2024. Fluctuations are evident, with a peak in 2022 at roughly 17.9 billion USD, followed by a temporary decrease in 2023 to 16.7 billion USD before increasing again in 2024. The general upward movement suggests expanded stockholding consistent with growing merchandise costs, though the 2023 dip may indicate efforts to optimize inventory or changes in supply chain dynamics.

Inventory Turnover Ratio

The inventory turnover ratio exhibits moderate variability without a clear linear trend. Values range from a low of approximately 11.13 in 2022 to a high of around 12.77 in 2023. The turnover ratio increased markedly in 2023, indicating improved efficiency in converting inventory into sales during that year, before slightly declining again in 2024. Overall, turnover ratios hover around a consistent average of about 12, suggesting stable inventory management performance relative to sales over the analyzed period.

Net Sales

Net sales exhibited a consistent upward trend over the observed periods. Starting at $149,351 million in 2019, they increased each year to reach $249,625 million in 2024. This represents a significant growth, indicating strong revenue expansion over the six-year span.

Receivables, Net

Net receivables also showed a rising trend, increasing from $1,535 million in 2019 to $2,721 million in 2024. The growth in receivables is less steep than that of net sales, but it reflects an increase in credit extended to customers or slower collections.

Receivables Turnover Ratio

The receivables turnover ratio started at 97.3 in 2019 and peaked at 106.52 in 2021, suggesting efficient collection of receivables during that period. However, the ratio declined thereafter, particularly dropping to 91.74 in 2024. This downward movement could indicate a slight weakening in the efficiency of converting receivables into cash or longer collection periods in recent years.

The financial data reveals several noteworthy trends over the examined periods regarding merchandise costs, accounts payable, and payables turnover.

Merchandise Costs

There is a consistent upward trajectory in merchandise costs from 2019 through 2024. The costs increased from US$132,886 million in 2019 to US$222,358 million in 2024. This reflects a substantial growth over the six-year period, indicating expansion in the scale of operations or rising costs associated with goods sold.

Accounts Payable

Accounts payable also exhibit growth over the period, rising from US$11,679 million in 2019 to US$19,421 million in 2024. While the increase is significant, it is less steep compared to merchandise costs, suggesting possible changes in payment terms or supplier management strategies.

Payables Turnover Ratio

The payables turnover ratio fluctuates moderately across the years. It decreased from 11.38 in 2019 to 10.23 in 2020, indicating slower payment to suppliers initially. Subsequently, it recovered to 10.49 in 2021 and continued to rise to 12.16 in 2023, before declining slightly to 11.45 in 2024. The peak in 2023 suggests a faster payment cycle that year, which then moderated in 2024.

Overall, the data exhibits a broad increase in both merchandise costs and accounts payable alongside some variability in the payables turnover ratio. These patterns may reflect growth dynamics, changes in supplier terms, and operational adjustments affecting the timing of payments to creditors.

The annual financial data reveals several notable trends and variations in key financial metrics over the observed periods.

Working Capital

Working capital displayed significant fluctuations over the years. It began at a moderate level of 248 million USD in 2019 and saw a substantial increase to 3,276 million USD in 2020. However, this figure dropped sharply to 64 million USD by 2021 before rising again to 698 million USD in 2022 and then to 2,296 million USD in 2023. The most recent data point shows a reversal, with working capital turning negative to -1,218 million USD in 2024. These swings indicate varying liquidity positions and potential changes in current assets and liabilities management.

Net Sales

Net sales demonstrated a consistent upward trend throughout the periods. Starting from 149.4 billion USD in 2019, sales grew steadily year over year, reaching 163.2 billion USD in 2020, 192.1 billion USD in 2021, 222.7 billion USD in 2022, 237.7 billion USD in 2023, and finally 249.6 billion USD in 2024. This progression reflects robust revenue growth and suggests increasing market demand or expansion efforts.

Working Capital Turnover

The working capital turnover ratio exhibited considerable volatility. In 2019, the ratio was exceptionally high at 602.22, indicating very efficient use of working capital relative to sales. This dropped dramatically to 49.82 in 2020. The ratio then spiked to an unusually high 3,000.81 in 2021, before decreasing again to 319.1 in 2022 and further to 103.53 in 2023. No data was available for 2024. These fluctuations imply instability in the relationship between working capital and sales, possibly reflecting changes in operational efficiency or capital structure.

The analysis of the given financial data over the six-year period reveals the following trends and observations:

Inventory Turnover Ratio

The inventory turnover ratio exhibits a generally stable pattern with minor fluctuations. It starts at 11.66 in 2019 and peaks at 12.77 in 2023 before slightly declining to 11.92 in 2024. The ratio remains consistently above 11, indicating effective inventory management and relatively frequent inventory renewal throughout the years. The peak in 2023 suggests an improved efficiency in selling inventory compared to prior years, although this efficiency slightly decreases in 2024.

Average Inventory Processing Period

The average inventory processing period fluctuates moderately during the period. It begins and ends at 31 days in 2019 and 2024, respectively, with a minor decrease to 29 days in 2023 indicating faster processing of inventory at that time. The highest average period was observed in 2022 at 33 days. This variation suggests changes in the speed at which inventory is converted or sold, with 2023 marked by the most efficient processing period within the observed timeframe.

Relationship Between Metrics

There is an inverse relationship between inventory turnover and average inventory processing period over the years, as expected. Higher turnover ratios correspond to shorter processing periods and vice versa. This relationship highlights the overall effectiveness in inventory management and may reflect operational adjustments or market demand variations impacting inventory flows.

Receivables Turnover

The receivables turnover ratio shows variability over the analyzed periods. Starting at 97.3 in 2019, it increased steadily to peak at 106.52 in 2021. Subsequently, there was a decline to 99.39 in 2022, followed by a partial recovery in 2023 to 104.03, and then a notable decrease to 91.74 in 2024. This pattern suggests fluctuating efficiency in collecting receivables, with the most recent year indicating a lower turnover and potentially slower collections compared to previous periods.

Average Receivable Collection Period

The average receivable collection period remained relatively stable throughout the years, fluctuating only slightly between 3 and 4 days. It was 4 days in 2019, decreased to 3 days in 2020 and 2021, then returned to 4 days from 2022 through 2024. The minimal changes imply a consistently short collection cycle, indicating effective management of receivables on average.

Overall Analysis

While the average collection period remains consistently low and stable, the fluctuation in receivables turnover ratio points to changes in the volume or timing of sales relative to receivables. The decline in turnover ratio in the most recent period could signal a slowdown in receivable collections or changes in sales patterns. The consistent short collection period suggests that despite these changes, the company maintains prompt collection practices.

Average Inventory Processing Period

The average inventory processing period exhibited slight fluctuations over the analyzed years. It maintained a stable level around 31 days in the initial period, then slightly decreased to 30 days before rising to 33 days in the subsequent year. Thereafter, it declined again to 29 days and finally returned to 31 days. This pattern suggests some variability in inventory turnover efficiency without a clear long-term trend.

Average Receivable Collection Period

The average receivable collection period remained consistently low and stable throughout the periods, ranging narrowly between 3 and 4 days. Such stability indicates effective and consistent credit and collection policies during the years under review.

Operating Cycle

The operating cycle showed minor fluctuations corresponding to the changes in inventory processing and receivable collection periods. It decreased gradually from 35 days to 33 days, saw a noticeable increase to 37 days, followed by a decline back to 33 days and then a slight rise to 35 days. This indicates relative stability in the company’s overall working capital management, with only moderate variations in operational efficiency.

Payables Turnover

The payables turnover ratio shows moderate fluctuations over the observed periods. Starting at 11.38 in 2019, it declined to a low of 10.23 in 2020, indicating slower payments to suppliers. Subsequently, it showed a gradual recovery, reaching a peak of 12.16 in 2023 before slightly declining again to 11.45 in 2024. This suggests that the company managed its payables more efficiently in recent years, particularly in 2023, but experienced a minor decrease in turnover thereafter.

Average Payables Payment Period

The average payables payment period, expressed in days, exhibited an inverse trend relative to the payables turnover ratio. It increased from 32 days in 2019 to 36 days in 2020, implying a longer duration to settle payables. From 2020 onwards, the period decreased consistently to a low of 30 days in 2023, followed by a slight increase to 32 days in 2024. This pattern indicates an improvement in payment efficiency after 2020, with a slight extension in payment terms or timing in the most recent year.

Average Inventory Processing Period

The average inventory processing period demonstrates moderate fluctuations over the six-year timeline. Initially stable at 31 days for 2019 and 2020, a slight reduction to 30 days occurred in 2021. This was followed by an increase to 33 days in 2022, before decreasing again to 29 days in 2023, and finally returning to 31 days in 2024. Overall, the period remains close to the 30-day mark, indicating relative consistency in inventory turnover efficiency with some minor variability.

Average Receivable Collection Period

The receivable collection period exhibits a high level of stability throughout the observed years. Starting at 4 days in 2019, it decreased slightly to 3 days in 2020 and 2021, then reverted to 4 days from 2022 through 2024. This suggests consistent management of accounts receivable, maintaining a quick conversion of credit sales into cash without significant deviations.

Average Payables Payment Period

The payable payment period shows a discernible trend of initial extension followed by a gradual shortening. This period increased from 32 days in 2019 to a peak of 36 days in 2020, then slightly declined to 35 days in 2021 and 33 days in 2022. It further decreased to 30 days in 2023 before rising marginally to 32 days in 2024. The overall pattern indicates a strategic adjustment in payment timing, likely aiming to balance payment obligations with cash flow management.

Cash Conversion Cycle

The cash conversion cycle (CCC) reveals variability with predominantly low levels, including some negative values in 2020 and 2021. The cycle started at 3 days in 2019, decreased to -2 days in 2020 and 2021, rose to 4 days in 2022, and then settled at 3 days in both 2023 and 2024. The negative CCC values indicate periods where payables payment outpaced receivables collection and inventory turnover, suggesting efficient liquidity management. The overall trend reflects a narrow CCC, indicative of strong operational efficiency in converting investments in inventory and other resources into cash flows.