Costco Wholesale Case Study

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Costco Wholesale Case Study

By | May 2010
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Stakeholders invest money with the intent to gain return in the future. It is important for stakeholders to gain access to information and evaluate the firm’s performance before they put money in it. On the other hand, it is the firm’s management team job to make decisions that would maximize the long term value of the firm’s common stock. The intent of this paper is to analyze Costco Wholesale Corporation’s financial performance and to assess how efficient the business has been over a five year period as well as to provide recommendation for financial management strategy.

The problem identified in this paper is the low margins in the industry. Because margins are low, the profitability of individual companies depends on high volume sales and efficient operations. Costco Wholesale Corporation is high-growth Retail Company. The company has experienced significant growth from 1997 to 2001, which has caught the attention of the competition. However, the numbers are decreasing because return on assets, return on equity, and asset turnover ratios have declined within the same time frame.

Costco Wholesale Corporation has been a major player in the retail industry. It is the largest wholesale club operator in the US. “The company operates about 555 membership warehouse stores serving more than 53 million cardholders in some 40 US states and Puerto Rico, Canada, Japan, Mexico, South Korea, Taiwan, and the UK, primarily under the Costco Wholesale name.” (Hoover's, Inc, 2010)

Costco’s strategy is low prices strategy. The management team has been able to pass savings to customers, keep low prices and maintain healthy margins at the same time. This has been a result of the company’s ability to become more efficient over time. The company saves on operation costs in order to provide low price while still keeping high quality products for customers. It has been constructing warehouses with inexpensive concrete floors. Selling items in bulk has...
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