This report provides a financial quarterly trend analysis for Costco Wholesale Corporation, Inc. founded in 1983. Costco Wholesale Corporation is the seventh largest retailer company in the world. As of July 2012, it was the fifth largest retailer, and the largest membership warehouse club chain in the United States ("Wikipedia, the free," 2011). Costco Wholesale Corporation’s stock is publicly traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) under the symbol “COST”, which I will use as reference throughout this report.
Costco is a company with an inspiring story. They have revolutionized the shopping experience at its maximum, breaking the rules of grocery shopping experience. In addition, Costco Wholesales have a novel business concept compare to its major competitors, building millions of loyal customers and expanding across the world every year. The followings are the main reasons why I chose to analyze this company:
* Costco’s business strategy is fascinating compared to other wholesale companies in the industry in how their stores are presented to the public. Costco supermarkets are made of cement floors, merchandises are laid on pallets, groceries are not handled in bags, aisles are not labeled, and lastly, they do not advertise. This business strategy save millions of dollars in operating cost every year. * Costco value their employees. The hourly wage for a Costco employee is one of the highest in the world, the average Costco employee make $20.00 an hour and about 90% of them are fully covered by insurance (Quintanilla, 2012). * Costco stocks rose 5000% during the past few years and despite the recent recession, the company posted record sales (Quintanilla, 2012). * The prices of goods at Costco are around 30% lower than the prices at a regular supermarket. This is a result of their rule that nothing is marked up more than 15% when a typical supermarket has a 25% markup and department stores up to 50% (Quintanilla, 2012). * In addition, Costco’s generic products, Kirkland, carry 15% of Costco merchandises. Sales of Kirkland products sales about 63 million dollars every year (Quintanilla, 2012)
The financial statements and trading information was researched for COST and Wal-Mart Stores, Inc (WMT), Costco’s main competition. The industry average was also analyzed. The key financial ratios for both companies were computed for the four most recent quarters and these ratios were used for com the basis for the financial trend comparison and industry performance comparative analysis.
2. Financial Ratio Calculation and Analysis
The financial statements and trading information for COST and WMT for the four most recent quarters (April 2011, August 2011, November 2011 and April 2012) were obtained from the following Internet sources:
* Market Watch
* Costco Wholesale Corporation
Market Watch was used the most because it provided more details and more variety of information than the other sources. The other sources were used to support the validity of the Market Watch’s data.
- Ratio Computations
The following table summarizes the results of the ratio computations for COST:
COST: KEY FINANCIAL RATIOS
Liquidity Ratios| Q1| Q2| Q3| Q4| Annual|
| | | | | |
Current Ratio| 1.13| 1.14| 1.13| 1.18| 1.18|
Quick Ratio| 0.61| 0.59| 0.55| 0.61| 0.61|
Net Working Capital Ratio| 0.1| 0.06| 0.06| 0.08| 0.08| Current Liabilities to Inventory Ratio| 1.95| 1.81| 1.75| 1.76| 1.76| | | | | | |
Assets Ratios| | | | | |
Inventory Turnover Ratio| 3.15| 4.24| 3.03| 3.26| 3.26| Fixed Asset Turnover Ratio| 15.95| 2.15| 1.66| 1.68| 1.68| Total Assets Ratio| 1.34| 1.05| 0.77| 0.8| 0.8|
Asset To Equity Ratio| 1.22| 2.13| 2.25| 2.11| 2.11|
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