Costco
Acquired
00:00
The Negative Cash Conversion Cycle and Costco's Inventory Financing
Costco has a unique business model that allows them to turn their inventory faster and more often than their competitors. With a high inventory turnover rate of 12.4 times per year, they can sell through their stock within 26-27 days. This means they have zero dollars tied up in inventory and can even make money on the float. Costco achieves this by having a low SKU count, instantly available items for sale, and standard payment terms with suppliers. They also benefit from a negative cash conversion cycle where vendors finance their inventory. This capital light business model allows Costco to open new warehouses with confidence and generate positive ROI on their fixed costs.
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