Costco Financial Statements and Financial Ratios Analyzed from 2015 to 2019
“Costco's 2019 Company Analysis… For Beginners: Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” was written by, Paul Borosky, MBA. and owner of Quality Business Plan. In this book, the author selected Costco's, 2019 10k, 2018 10k, Costco's 2017 10k annual report, Costco's 2016 10k annual report, Costco's 2015 10k annual report as the basis for information gathering.
Costco: Brief Summary
Coscto's headquarters is located at 999 Lake Drive in Issaquah, WA. The firm competes in the consumer defensive industry. At present, they employ about 150,000 people.
The current executive team and compensation are as follows.
|Craig Jelinek||CEO||1.19 Million|
Section 1: Costco Income Statement Analyzed 2015 to 2019
In this section, I walk through a broad definition as to what an income statement is and why it is important. From this, I then discuss each of Costco's important income statement line items, such as revenues, gross profits, etc. in detail. After each line item is defined and discussed, I then offer an analysis of Costco's income statement line item from 2015 to 2019, in most cases.
Revenue Growth: Costco’s revenue has grown at an average rate of 7.1% over the last five years. In the last three years, the growth rate has ranged from 7.9% to 9.7%. However, the growth rate from 2019 to 2018 was only 7.9%, which is off their high of 9.7%. If this trend continues, then there future net earnings may be mitigated substantially.
SG&A: The company’s SG&A has ranged between 9.8% to 10.2%. In the last two years, this line item has stayed consistent at 9.8%. This shows that the organization has moderated its overhead costs to align with revenue growth. As a result, the firm may have developed a sustainable competitive advantage over other wholesale outlets.
Costco's Income Statement
|R & D||-||-||-||-||-|
Section 2: Coscto Balance Sheet Analyzed from 2015 to 2019
For Costco balance sheet, I again go through each important line item from the balance sheet. In reviewing each line item, I will define the Costco's balance sheet line item, such as cash, property, plant and equipment, and liabilities between 2015 to 2019. Next, I then offer an analysis of Costco's balance sheet line item.
Cash: Costco’s cash position has grown from $4.8 billion in 2015 to $8.3 billion in 2019. The substantial growth in cash means that the organization either needs more money to support operations, or the company is not optimally using their excess cash. A better strategy would be to identify a budget that the company needs for cash and invest the rest of the funds in short-term investments.
Short-term investments: The organization ended 2015 with $1.6 billion in short-term investment. As of 2019, their short-term investment position fell to $1.1 billion. This means the company has fewer funds in its short-term investment account. However, the cash position almost doubled. This strategy indicates that the company is continually utilizing its cash in a sub-optimal manner. A better strategy would be to continually increase their short-term investment position and only hold enough cash needed to sustain operations.
Costco's Summary Balance Sheet 2019
|Short Term Investment||1,060||1,204||1,233||1,350||1,618|
|LT Debt - Current||1,699||90||86||1,100||1,283|
|Total Current Liabilities||3,792||2,924||17,495||15,575||16,540|
|Total Equity & Liability||45,400||40,830||36,347||33,163||33,440|
Section 3: Costco Financial Ratios Analyzed from 2015 to 2019
For this section, I have chosen about 16 different financial ratios to review for Coscto Inc from 2015 to 2019. In reviewing each of Coscto's financial ratios, I first start with defining the financial ratio. Next, I supply the financial formula for calculating the specific ratio. Finally, I offer a brief analysis of Costco Financial ratios. Ratios calculated and analyzed for the last five years include:
- Costco's current ratio for 2015 to 2019
- Costco's quick ratio for 2015 to 2019
- Costco's cash ratio for 2015 to 2019
- Costco's total asset turnover for 2015 to 2019
- Costco's fixed asset turnover for 2015 to 2019
- Costco's Days Sales Outstanding for 2015 to 2019
- Costco's Inventory Turnover for 2015 to 2019
- Costco's Accounts Receivable Turnover for 2015 to 2019
- Costco's accounts payable turnover for 2015 to 2019
- Costco's return on assets (ROA) for 2015 to 2019
- Costco's return on equity (ROE) for 2015 to 2019
- Costco's profit margin for 2015 to 2019
- Costco's gross profit margin for 2015 to 2019
- Costco's operating profit margin for 2015 to 2019
- Costco's long-term debt ratio for 2015 to 2019
- Costco's debt to equity ratio for 2015 to 2019
- Costco's times interest earned for 2015 to 2019
Current Ratio: Costco’s current ratio has fluctuated between 1.05 and .98 over the last five years. Industry standards for the current ratio are 1.0. This indicates that the company maintains a solid balance with having enough current assets to cover its short-term liabilities.
Total Asset Turnover: Costco’s total asset turnover has maintained a relatively consistent showing over the last five years. The ratios range has been between 3.36 to 3.58. However, in the last three years, there has been a steady decline in the total asset turnover ratio. This shows that the firm may be underutilizing their assets as they grow. This often happens when an organization holds significant cash.
Return on Equity: Over the last five years, Cosco has slightly improved its return on equity. In 2015, this ratio was approximately 22%. As of 2019, the return on equity slightly increased to 23.5%. The company may significantly increase this ratio by increasing their debt load. The more debt the company takes on for growth and inventory or other operational purposes, the less reliance the company has upon its current scarce equity resources.
Debt to Equity Ratio: The company’s debt to equity ratio has continually fallen over the last several years. In 2017, their debt to equity ratio was 59.33%. As of 2019, the debt to equity ratio fell to 32.88%. This further suggests that the company is relying more upon equity as compared to debt for sustaining operations and expansion. Because of the limits placed on equity, the firm may be missing out upon possible expansion opportunities. A better strategy would be to increase the debt to equity ratio to be more in line with industry standards.
Costco Liquidity Ratios
|Net Working Capital||6,459||4,533||3,501||3,359||3,454|
Costco Asset Utilization
|Total Asset Turnover||3.36||3.47||3.55||3.58||3.47|
|Fixed Asset Turnover||7.31||7.19||7.10||6.97||7.54|
|Days Sales Outstanding||3.67||4.30||4.05||3.85||3.84|
|Accounts Receivable Turnover||99.48||84.83||90.10||94.82||94.93|
|Working Capital Turnover||23.64||31.23||36.85||35.34||33.64|
|Average Days Inventory||0.04||0.04||0.04||0.04||0.04|
|Average Days Payable||0.04||0.03||0.04||0.04||0.04|
Costco Profitability Ratios
|Return on Assets||8.06%||7.68%||7.37%||7.09%||7.11%|
|Return on Equity||23.48%||23.92%||24.18%||19.06%||21.92%|
|Net Profit Margin||2.40%||2.21%||2.08%||1.98%||2.05%|
|Gross Profit Margin||12.98%||13.01%||13.29%||100.00%||100.00%|
|Operating Profit Margin||3.10%||3.16%||3.19%||3.26%||3.12%|
|Basic Earning Power||10.43%||10.97%||11.31%||11.68%||10.84%|
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