Costco Competitive Analysis

Topics: Financial ratios, Financial ratio, Revenue Pages: 22 (6076 words) Published: July 2, 2012
|Costco | |ESC-Accounting and Finance | | | |This case analysis will analyze the efficiency and health of the organization. This | |case analysis was created using the textbook and the Stanford Graduate School of | |Business. Costco Wholesale Corporation Financial Statement Analysis (A) Case A-186A.| |19 June 2003. | | | |

I. Executive Summary

• Market expansion efforts have allowed Costco to add to its number of store locations. A continual focus on keeping costs low control have allowed Costco to offer products at prices that continue to attract customers despite rising membership fees over the years.

• Costco financial results overall are positive with favorable trends noted by their revenue and membership fees, decreases in operating expenses, market expansion efforts, increase in EBIT, increase in retained earnings and interest income, decrease in inventory on hand, decrease noted in long term debt, favorable current ratio, competitive average receivables at 3 days coupled with competitive payables period of 33 days.

• Costco remains an attractive investment option for Margarita Torres based on strong fundamentals and a continued focus on expense control. Initial concerns may exist regarding the amount of time it may take for the investment in newer stores to add positive financial results, but Costco has proven that their past market expansion efforts have been successful. As long as the company continues to do so in the same fashion as previously, all indications are that Costco will continue to add to its net sales/membership fees, maintain a watchful eye on expenses, and keep debt at manageable levels resulting in increasing net income trends.

II. Strategic Profile and Case Analysis Purpose

As a Costco member and stockholder since 1997, Margarita Torres now wants to review the current financials to determine whether Costco is operating efficiently and if the company can sustain its successful growth record. Margarita has compiled financial statistics for Costco as well as other competitors in the industry over a period of time. The statistics were collected from 1998 through 2001. Before we begin to dive into a more specific review of the financial results of Costco and its industry competitors to determine strengths and opportunity areas for Costco, it is important to look first at the company’s history and analyze both the industry and the competition that currently exists for Costco. III. History

Starting in 1976, in a converted airplane hangar in San Diego, California, Price Club, as it was originally known, was a wholesale club for small business owners. (Miller, 2011) These business owners could purchase memberships and buy goods in bulk for either commercial or private use. Since then, the company realized it could attain a far greater sales audience by catering to non-business owners alike and with that change the birth of the warehouse club industry was off and running. On July 12th, 1980, four years after originally opening its doors to the public, Price Club went public. (Miller, 2011) In 1983, Costco opened its doors to the first warehouse in Seattle Washington, with two more to follow within the next year; Portland, Oregon and Spokane, Washington. By the end of the year in 1984, Costco was running 9 stores on the West Coast, but was still in competition with Price Club who was gloating sales over 1 billion dollars and a 2-1 stock split. To keep in the running, Costco decided in 1985 to offer shares to the public, and in addition started offering many firsts for...
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