Research Paper
Costco case
1. Dividend payout for all the period is 0%, Earnings retention ratio is 100% (0 and 1 ratios respectively). That means that Costco retain 100% earnings (without paying out any dividends), what indicates the rapidly expanding company.
2. Costco’s ROE was fluctuating during the period, what indicated a consistent company performance. ROE’s values have been just between the “good companies” values (from 15% to 20%)
3. Costco’s financial leverage has fallen slightly from 2.22 to 2.04, what means that for every dollar of invested capital Costco acquires $2.04 worth of assets in 2001 versus $2.22 worth of assets in 1998. This may indicate that less assets are being acquired, therefore less sales may be generated, therefore less net income, therefore less return for shareholders and less attractive investment opportunity.
4. Assets represent the sum of capital Costco uses at any given time. Thus, return on assets (ROA) is a measure of Costco’s overall profitability. Costco’s ROA experienced fluctuations meaning that there is no obvious trend of increasing or decreasing of ROA. This index was moving up and down between 0.084 and 0.07 with a ROA of 0.07 in 2001. This means that every dollar of assets Costco Is able to generate 0.07 of income.
5. Costco’s ROA can be broken down into asset turnover and net income margin. These ratios determine whether sales or increased margin is accounted for changes in profitability. Asset turnover measures how many dollars in sales were made for each dollar in assets. From 1998 to 2001 Costco has seen a decrease from 4.43 to 4.03 in asset turnover meaning that Costco is less efficient in using assets to generate sales.
6. Net income margin or ROS measures how much profit was generated per dollar sales. Costco’s values very fluctuating during the period of time, but overall ROS was up from 1.43% in 1998 to 1.73% in 2001. This could indicate that Costco is doing a good job of generating profit per dollar of sales.
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1. Dividend payout for all the period is 0%, Earnings retention ratio is 100% (0 and 1 ratios respectively). That means that Costco retain 100% earnings (without paying out any dividends), what indicates the rapidly expanding company.
2. Costco’s ROE was fluctuating during the period, what indicated a consistent company performance. ROE’s values have been just between the “good companies” values (from 15% to 20%)
3. Costco’s financial leverage has fallen slightly from 2.22 to 2.04, what means that for every dollar of invested capital Costco acquires $2.04 worth of assets in 2001 versus $2.22 worth of assets in 1998. This may indicate that less assets are being acquired, therefore less sales may be generated, therefore less net income, therefore less return for shareholders and less attractive investment opportunity.
4. Assets represent the sum of capital Costco uses at any given time. Thus, return on assets (ROA) is a measure of Costco’s overall profitability. Costco’s ROA experienced fluctuations meaning that there is no obvious trend of increasing or decreasing of ROA. This index was moving up and down between 0.084 and 0.07 with a ROA of 0.07 in 2001. This means that every dollar of assets Costco Is able to generate 0.07 of income.
5. Costco’s ROA can be broken down into asset turnover and net income margin. These ratios determine whether sales or increased margin is accounted for changes in profitability. Asset turnover measures how many dollars in sales were made for each dollar in assets. From 1998 to 2001 Costco has seen a decrease from 4.43 to 4.03 in asset turnover meaning that Costco is less efficient in using assets to generate sales.
6. Net income margin or ROS measures how much profit was generated per dollar sales. Costco’s values very fluctuating during the period of time, but overall ROS was up from 1.43% in 1998 to 1.73% in 2001. This could indicate that Costco is doing a good job of generating profit per dollar of sales.
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