Short-term financing Ex-1
As seen in the table above (Short term financing Ex-1), Costco’s inventory period has grown over the past 5 years. This is coupled with a fluctuating receivables period that is also slightly growing. These two periods led to a growing Operating Cycle which, in general, …show more content…
(2) The company can change their receivable policy. This is more difficult to do because it is already low. Additionally, the receivables that the company has are from two sources, vendor receivables for volume rebates/purchase discounts and reinsurance receivables from Costco’s insurance subsidiary (Costco’s 10-K filing). These two factors are harder to change, and simply adjusting credit terms or invoice policy will not do the job. (3) The last option rests in the company’s payable policy. From ‘15-’16, Costco’s payable period has dropped from 32 to 27 days. This results in 5 additional days that the company needs to finance using cash. The company must revert back to paying their payables during the 30-32 day mark, as they had from …show more content…
Kroger, in 2016, has introduced a new payables policy that extends their period 2 days longer than the 5 year average. With a payables period of 24.45 days, Kroger only needs to finance with cash for 6.62 days. Should they continue to better these cycles, it is possible to see a complete remission of the cash cycle.
Short-term financing Ex-4
From our examination of the previous three charts, we have made several conclusions: (1) Costco’s short term cycles and periods have slowly been getting less efficient over the past 5 years and have led to a cash cycle in 2016 that is more than double 2015’s. (2) Walmart had struggled in 2014 with its short term policies, but is now on track to being more efficient with short-term financing. (3) Kroger has experienced, since 2012, greatly fluctuating periods, but is now on track to have a great 2016 with its longest payable period and shortest cash