The Financial Status of Costco Essay

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Total Length: 1648 words ( 5 double-spaced pages)

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1. Introduction: Provide a brief background of the company and description of its business.

Costco Wholesale Corporation provides wholesale goods in a variety of disparate areas including electronics, food and kitchen supplies, basic textiles, automotive parts, and many others including furniture and jewelry. Its business, therefore, is centered upon provisioning the greatest amount of quantity of goods for the most reasonable prices. This company was founded in 1976 in California and was originally known as Price Club. Today it has expanded throughout the continental United States. Its basic business model is that people must pay a membership fee in order to join the company shop in its myriad wholesale locations. There are varying forms of membership, each of which has different benefits.

2. Economy: Assess the overall economic outlook.

The overall economic outlook for Costco is fairly stable. In terms of macro factors, the global economy has considerably improved within the past 10 years, and in reality could not have gotten much worse. This fact has aided Costco stateside because the domestic economy has followed suit. In particular, it has been abetted by the recent amendments in tax legislation which are beneficial to a number of corporate interests. Economically, Costco has been advantaged by multiple openings of warehouse locations across the country (Costco Wholesale), which increases its propensity for achieving business objectives. Costco’s average sales per warehouse has been steadily increasing over the last 10 years (Costco Wholesale), indicative of its overall economic progress.

3. Industry: Perform a brief analysis of the company’s industry. Assess the competitive environment. Who are the company’s major competitor(s)? What are the key success factors?

Although Costco is technically considered a wholesaler, it is worth noting that a significant portion of its business is focused on retail activities. Numerous members simply enroll in this organization to capitalize on the advantageous prices at a wholesale scale, in some instances. Thus, Costco is in a substantially competitive environment which includes both wholesale entities and retail ones. Of the latter, its major “competitor” (Cascii 26) is predominantly Wal-Mart.

These two entities routinely compete for the largest retailer in various categories such as food supplies. Other significant forms of competition are found among conventional physical location retailers and wholesalers, such as Target. However, Costco is significantly challenged by online activities. Formidable competitors in this space include Amazon and Wal-Mart.

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4. What are the strengths and weaknesses of the company in operations, marketing, management, and corporate governance? Assess the firm’s strategy. (2 paragraphs).

The company’s strength in terms of operations is its accessibility. With e-commerce opportunities and numerous physical locations in abundance, it is readily accessible. However, it must contend with costs associated with both operating physical stores and staffing warehouses for e-commerce. Part of Costco’s marketing appeal is the wide varieties of goods and services it provides, including gasoline and benefits such as nitrogen inflated tires.

However, it could devote more energy to marketing its online services. Costco’s strength in corporate governance is orderly by-laws and procedures with which it governs the interests of the shareholders and stakeholders. Its weakness is the lack of accountability that its officers have to those shareholders. The management’s strength is largely the recognizable brand which is Costco and which resonates with consumers. Its weakness is the division of its interests among such a multifaceted line of business.

5. Financial ratio analysis: (From PMBA 5225). Perform a financial ratio analysis for the firm for the past three years. Analyze the company’s performance in the areas of liquidity, asset management, financial leverage, and profitability.

The financial health of Costco is relatively solid. An analysis of the company’s balance sheet and inventory statement proves this fact. When looking at these documents in terms of Costco’s financial ratio analysis for the past three years in the areas of liquidity, financial leverage, asset management and profitability, it is clear that Costco is not in any sort of financial danger. Its liquidity of 55.66 in 2017 was the highest it has been in three years, which is impressive (Costco Wholesale, 2018). Although its financial leverage was at the lowest since 2016 (of the past three years), it did not get extraordinarily high in 2017. Its profitability—expressed in its return of a assets ratio of .73—also was the highest it has been in three years, indicating financial growth.

Liquidity: 36347/6573=55.66 for 2017 assets divided by current liabilities want highest

33163/4,061= 8.162016

33017/4852= 6.08

Asset Mg: 2017 126172 net sales/inventory 18161=6.94=INVENTory turnover ratio

16 116073/17043=6.81

15 113,666/15401=7.3

Profitability: return on assets ratio net income/total assets

2017 2,679/36347=.073
….....

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