Costco Financial Statements and Financial Ratios

Costco: Brief Summary

Costco Incorporated is one of the most sought-after stocks in the world.  The company’s legendary founders, James Sinegal and Jeffrey Brotman are world-renowned.  Costco Inc. continues to innovate and disrupt its industry under the current leadership of Craig Jelinek. 

These circumstances have resulted in the organization becoming an industry leader.  For some, these facts alone are reason enough to buy stock in the company.

Costco Financial Report Sources

 “Costco 2022 Company Analysis: 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 report, the author selected Costco's 2018 10k, 2019 10k annual report, 2020 10k annual report, 2021 10k annual report, and Costco's 2022 10k annual reports as the basis for information gathering. 

 

Section 1: Costco Income Statement Analyzed

In this section, I walk through a broad definition of what an income statement is and why it is important.  From this, I then discuss and define income statement line items, such as revenues, gross profits, etc. in detail.  After each line item is defined and discussed, I finally offer a summary analysis of Costco's important income statement line item trends from 2016 to 2020, in most cases.

Revenue Growth:  Costco’s revenues in 2016 were $118 billion.  In the next several years, the organization will continually increase its revenues ending 2020 at $166.7 billion.  This moderate growth rate equates to approximately a 9% annual revenue growth.

The consistent and above-average annual growth rate shows that the company is currently in a business expansion cycle.  In a business expansion cycle, investors often forgo the expectation of dividend payouts in hopes of future revenue gains through increased retained earnings.  In Costco’s case, not only is the organization consistently increasing its revenues, but they are also increasing its dividend payouts as well.  Investors are being rewarded on two fronts!  What a great deal.

Costco 2022 Income Statement Summary
Column1	2022	2021	2020	2019	2018
Revenues	226,954	195,929	166,761	152,703	141,576
COGS	199,382	170,684	144,939	132,886	123,152
Gross Profit	27,572	25,245	21,822	19,817	18,424
SG&A	19,779	18,461	16,332	14,994	13,876
Depreciation	1,900	1,781	1,645	1,492	1,437
R & D	-	-	-	-	-
Other
Total Operating Expenses	19,779	18,537	16,387	15,080	13,944
EBIT	7,793	6,708	5,435	4,737	4,480
Other Income			-	-	-
Interest Expense	(158)	(171)	(160)	(150)	(159)
EBT	7,840	6,680	5,367	4,765	4,442
Taxes	1,925	1,601	1,308	1,061	1,263
Net Income	5,915	5,007	4,002	3,659	3,134

 

Section 2: Costco Balance Sheet Analyzed

For Costco's balance sheet, I again go through each important line item from the balance sheet.  In reviewing each line item, I will define Costco's balance sheet line items, such as cash, property, plant and equipment, and liabilities between 2016 to 2020.  Next, I then offer a summary analysis of Costco's essential balance sheet line items.

Cash:  Costco’s cash position in 2016 was $3.3 billion.  In the next three years, the organization would moderately increase its cash position ending 2019 at $8.3 billion.  However, in 2020, the organization’s cash position would increase substantially, ending the year at $12.2 billion. 

The significant increase in cash may indicate that the organization needs more funds to maintain operations.  However, because the organization has shown impressive discipline with its continued revenue growth and moderate cost growth, increasing cash at such a substantial rate may indicate inefficiencies in using the current assets of the organization.  A better strategy would be for the firm to maintain its disciplinary ways and grow its cash position moderately similar to its revenue growth as well as operating cost growth.

 

Costco 2022 Summary Balance Sheet
Column1	2022	2021	2020	2019	2018
Cash	10,203	11,258	12,277	8,384	6,055
Short Term Investment	846	917	1,028	1,060	1,204
Account Receivable	2,241	1,803	1,550	1,535	1,669
Inventory	17,907	14,215	12,242	11,395	11,040
Other	-	-	-	-	-
Current Assets	32,696	29,505	28,120	23,485	20,289
Net PPE	24,646	23,492	21,807	20,890	19,681
Goodwill	-	-	-	-	-
Other	-	-	-	-	-
Total Assets	64,166	59,268	55,556	45,400	40,830
Accounts Payable	17,848	16,278	14,172	11,679	11,237
Accrued Expense	4,381	4,090	3,605	3,176	2,994
Accrued Taxes	-	-	-	-	-
Notes Payable	-	-	-	-	-
LT Debt - Current	73	799	95	1,699	90
Other	-	-		-	-
Total Current Liabilities	31,998	29,441	24,844	23,237	19,926
LT Debt	6,484	6,692	7,514	5,124	6,487
Other	-	-	-	-	-
Total Liabilities	43,519	41,190	36,851	29,816	27,727
Common Stock	2	4	4	4	4
Treasury	-	-	-	-	-
Retained Earnings	15,585	11,666	12,879	10,258	7,887
Other	-	-	-	-	-
Total Equity	20,647	18,078	18,705	15,584	13,103
Total Equity & Liability	64,166	59,268	55,556	45,400	40,830

 

Section 3: Costco Financial Ratios Analyzed

For this section, I have chosen several different financial ratios to review for Costco from 2016 to 2020.  In reviewing each of Costco'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's Important Financial ratios. 

Costco's Total Asset Turnover

Costco’s total asset turnover ended in 2016 at 3.5.  In the next several years, the organization’s total asset turnover would continually fall, ending 2020 at 3.0.  This means that the organization is making less money on total assets managed.  To better utilize total assets, the organization needs to either sell off underutilized assets and equipment or moderate its fixed asset accumulation until its current assets under management are better optimized.  In other words, the company needs to stop buying stuff like buildings and heavy machinery before they fully optimize what they have now.

Costco's Return on Assets

Costco’s return on assets ended 2016 at 7%.  In the next three years, the organization’s return on assets would moderately grow to 8.06% in 2019.  However, in 2020, the organization’s return on assets would moderately fall to 7.2%.  The reduction in return on assets for the organization may be attributed to its inability to optimally exploit current asset opportunities.  In other words, the company is holding too much cash and possibly short-term investments.  A better strategy would be for the organization to better utilize its liquid assets by paying out increased dividends, investing in company expansion at a faster pace, or repurchasing stocks from the open market.  Any one of these actions may help improve the organization’s management of assets.