## Short-term (Operating) Activity Analysis

Quarterly Data

Difficulty: Beginner

Activity ratios measure how efficiently a company performs day-to-day tasks, such us the collection of receivables and management of inventory.

### Ratios (Summary)

**Costco Wholesale Corp., short-term (operating) activity ratios (quarterly data)**

Ratio | Description | The company |
---|---|---|

Inventory turnover |
An activity ratio calculated as cost of goods sold divided by inventory. | Costco Wholesale Corp.'s inventory turnover improved from Q1 2018 to Q2 2018 and from Q2 2018 to Q3 2018. |

Receivables turnover |
An activity ratio equal to revenue divided by receivables. | Costco Wholesale Corp.'s receivables turnover deteriorated from Q1 2018 to Q2 2018 but then improved from Q2 2018 to Q3 2018 exceeding Q1 2018 level. |

Payables turnover |
An activity ratio calculated as cost of goods sold divided by payables. | Costco Wholesale Corp.'s payables turnover increased from Q1 2018 to Q2 2018 but then slightly declined from Q2 2018 to Q3 2018. |

Working capital turnover |
An activity ratio calculated as revenue divided by working capital. | |

Average inventory processing period |
An activity ratio equal to the number of days in the period divided by inventory turnover over the period. | Costco Wholesale Corp.'s average inventory processing period improved from Q1 2018 to Q2 2018 and from Q2 2018 to Q3 2018. |

Average receivable collection period |
An activity ratio equal to the number of days in the period divided by receivables turnover. | |

Operating cycle |
Equal to average inventory processing period plus average receivables collection period. | Costco Wholesale Corp.'s operating cycle improved from Q1 2018 to Q2 2018 and from Q2 2018 to Q3 2018. |

Average payables payment period |
An estimate of the average number of days it takes a company to pay its suppliers; equal to the number of days in the period divided by payables turnover ratio for the period. | Costco Wholesale Corp.'s average payables payment period declined from Q1 2018 to Q2 2018 but then slightly increased from Q2 2018 to Q3 2018. |

Cash conversion cycle |
A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to average inventory processing period plus average receivables collection period minus average payables payment period. | Costco Wholesale Corp.'s cash conversion cycle deteriorated from Q1 2018 to Q2 2018 but then improved from Q2 2018 to Q3 2018 not reaching Q1 2018 level. |

### Inventory Turnover

**Costco Wholesale Corp., inventory turnover calculation (quarterly data)**

*Q3 2018 Calculations*

^{1} Inventory turnover
= (Merchandise costs_{Q3 2018}
+ Merchandise costs_{Q2 2018}
+ Merchandise costs_{Q1 2018}
+ Merchandise costs_{Q4 2017})
÷ Merchandise inventories

= (28,131 + 28,733 + 27,617 + 36,697)
÷ 10,626 = 11.40

Ratio | Description | The company |
---|---|---|

Inventory turnover |
An activity ratio calculated as cost of goods sold divided by inventory. | Costco Wholesale Corp.'s inventory turnover improved from Q1 2018 to Q2 2018 and from Q2 2018 to Q3 2018. |

### Receivables Turnover

**Costco Wholesale Corp., receivables turnover calculation (quarterly data)**

*Q3 2018 Calculations*

^{1} Receivables turnover
= (Net sales_{Q3 2018}
+ Net sales_{Q2 2018}
+ Net sales_{Q1 2018}
+ Net sales_{Q4 2017})
÷ Receivables, net

= (31,624 + 32,279 + 31,117 + 41,357)
÷ 1,593 = 85.61

Ratio | Description | The company |
---|---|---|

Receivables turnover |
An activity ratio equal to revenue divided by receivables. | Costco Wholesale Corp.'s receivables turnover deteriorated from Q1 2018 to Q2 2018 but then improved from Q2 2018 to Q3 2018 exceeding Q1 2018 level. |

### Payables Turnover

**Costco Wholesale Corp., payables turnover calculation (quarterly data)**

*Q3 2018 Calculations*

^{1} Payables turnover
= (Merchandise costs_{Q3 2018}
+ Merchandise costs_{Q2 2018}
+ Merchandise costs_{Q1 2018}
+ Merchandise costs_{Q4 2017})
÷ Accounts payable

= (28,131 + 28,733 + 27,617 + 36,697)
÷ 10,705 = 11.32

Ratio | Description | The company |
---|---|---|

Payables turnover |
An activity ratio calculated as cost of goods sold divided by payables. | Costco Wholesale Corp.'s payables turnover increased from Q1 2018 to Q2 2018 but then slightly declined from Q2 2018 to Q3 2018. |

### Working Capital Turnover

**Costco Wholesale Corp., working capital turnover calculation (quarterly data)**

*Q3 2018 Calculations*

^{1} Working capital turnover
= (Net sales_{Q3 2018}
+ Net sales_{Q2 2018}
+ Net sales_{Q1 2018}
+ Net sales_{Q4 2017})
÷ Working capital

= (31,624 + 32,279 + 31,117 + 41,357)
÷ 282 = 483.61

Ratio | Description | The company |
---|---|---|

Working capital turnover |
An activity ratio calculated as revenue divided by working capital. |

### Average Inventory Processing Period

**Costco Wholesale Corp., average inventory processing period calculation (quarterly data)**

*Q3 2018 Calculations*

^{1} Average inventory processing period = 365 ÷ Inventory turnover

= 365 ÷ 11.40 = 32

Ratio | Description | The company |
---|---|---|

Average inventory processing period |
An activity ratio equal to the number of days in the period divided by inventory turnover over the period. | Costco Wholesale Corp.'s average inventory processing period improved from Q1 2018 to Q2 2018 and from Q2 2018 to Q3 2018. |

### Average Receivable Collection Period

**Costco Wholesale Corp., average receivable collection period calculation (quarterly data)**

*Q3 2018 Calculations*

^{1} Average receivable collection period = 365 ÷ Receivables turnover

= 365 ÷ 85.61 = 4

Ratio | Description | The company |
---|---|---|

Average receivable collection period |
An activity ratio equal to the number of days in the period divided by receivables turnover. |

### Operating Cycle

**Costco Wholesale Corp., operating cycle calculation (quarterly data)**

No. of days

*Q3 2018 Calculations*

^{1} Operating cycle = Average inventory processing period + Average receivable collection period

= 32 + 4 = 36

Ratio | Description | The company |
---|---|---|

Operating cycle |
Equal to average inventory processing period plus average receivables collection period. | Costco Wholesale Corp.'s operating cycle improved from Q1 2018 to Q2 2018 and from Q2 2018 to Q3 2018. |

### Average Payables Payment Period

**Costco Wholesale Corp., average payables payment period calculation (quarterly data)**

*Q3 2018 Calculations*

^{1} Average payables payment period = 365 ÷ Payables turnover

= 365 ÷ 11.32 = 32

Ratio | Description | The company |
---|---|---|

Average payables payment period |
An estimate of the average number of days it takes a company to pay its suppliers; equal to the number of days in the period divided by payables turnover ratio for the period. | Costco Wholesale Corp.'s average payables payment period declined from Q1 2018 to Q2 2018 but then slightly increased from Q2 2018 to Q3 2018. |

### Cash Conversion Cycle

**Costco Wholesale Corp., cash conversion cycle calculation (quarterly data)**

No. of days

*Q3 2018 Calculations*

^{1} Cash conversion cycle = Average inventory processing period + Average receivable collection period – Average payables payment period

= 32 + 4 – 32 = 4

Ratio | Description | The company |
---|---|---|

Cash conversion cycle |
A financial metric that measures the length of time required for a company to convert cash invested in its operations to cash received as a result of its operations; equal to average inventory processing period plus average receivables collection period minus average payables payment period. | Costco Wholesale Corp.'s cash conversion cycle deteriorated from Q1 2018 to Q2 2018 but then improved from Q2 2018 to Q3 2018 not reaching Q1 2018 level. |