This case is based on how Costco Wholesales Corporation has become more efficient over time and how the company has accelarated its growth. In order to effectively address the company’s financial status, following things are needed to be taken under consideration
How had the company been affected by growth?
Had its operational efficiency changed?
How had it financed the growth and how had its capital structure evolved?
The whole case provides insight about the company and ratio from its operations and strenghts and weaknesses of the company.
The case basically represents the scenario of the company'r financial performances from the year 2000 to 2006. Few calculations are done during this period to evaluate the overall performance of the company.
The generic competitive strategy employed by Costco is that of the best cost provider in the wholesale category. The best cost provider strategy is a mix of low cost provider and differentiation. This strategy is aligned with Costco’s abilities and resources. That is, a streamlined supply chain, purchasing power, good supplier relationships, high sales volumes, quick inventory turnover, and excellent customer service. The three components of the company’s strategy are low pricing, limited product selection and what the company calls “treasure-hunt merchandising”, or high end products acquired in closeouts and liquidations.
Statement of the problem
The profit margin of the company is decreasing slightly but it should have an upward trend as days progress. There is also a problem regarding the return on equity. In the year 2006 it decreased sharply. Another problem is costo is maintaining a relatively lower level of liquidity.
Statement of the objective
To increase the profit margin along with the sales growth – Company may review the pricing strategy a bit to enhance the profit margin. Currently Costco follows the strategy to sell the products at lowest possible