Costco Financial Statements and Financial Ratios

Costco: Brief Summary

Costco Inc. is a highly esteemed and sought-after stock worldwide, renowned for its remarkable founders, James Sinegal, and Jeffrey Brotman, who have left an indelible mark on the industry. Under the visionary leadership of Craig Jelinek, the company continues to innovate and disrupt the market, solidifying its position as an industry leader. The strong market presence and reputation of Costco Inc. make it an appealing choice for investors.

The legacy of its founders, coupled with its unwavering commitment to customer satisfaction and high-quality products, has established Costco Inc. as a trusted brand. Investors are drawn to the company's consistent growth and strong financial performance. Furthermore, Costco Inc.'s ability to adapt to changing market dynamics and embrace new technologies showcases its agility and resilience.

These factors contribute to the desirability of investing in Costco Inc., as it represents a reliable and forward-thinking organization with a solid track record of success. With its strategic vision and dedication to customer value, Costco Inc. remains at the forefront of the industry, attracting investors who recognize its long-term growth and profitability potential.

Costco Financial Report Sources

The "Costco 2022 Company Analysis: Financial Statements and Financial Ratios" was authored by Paul Borosky, MBA., the owner of Quality Business Plan. This report relied on Costco's 2018, 2019, 2020, 2021, and 2022 annual reports (10-K) as primary sources of information. The report delves into a comprehensive analysis of Costco's financial statements and ratios over the course of five years. By leveraging these reliable and up-to-date financial reports, readers gain valuable insights into Costco's financial performance, allowing for a deeper understanding of the company's operations and trends. This source is essential for conducting a thorough financial analysis of Costco, enabling investors, analysts, and stakeholders to make informed decisions and accurately evaluate the company's financial health and prospects.

Section 1: Costco Income Statement Analyzed

In this section, I provide a comprehensive overview of the income statement, explaining its significance in financial analysis. I define and discuss key line items, including revenues, gross profits, and more, offering detailed insights into their implications. Furthermore, I present a summary analysis of Costco's crucial income statement line item trends from 2016 to 2020, allowing readers to grasp the company's financial performance over the years. By exploring these trends and examining the income statement, stakeholders gain a deeper understanding of Costco's revenue generation, profitability, and overall financial health. This section is a foundation for conducting a thorough financial analysis of Costco and facilitates informed decision-making by investors and analysts.

Importance of Costco's Income Statement for Financial Analysis

The income statement is a crucial financial statement that provides valuable insights into a company's financial performance. Understanding Costco's income statement is of utmost importance for financial analysis due to several reasons. The income statement reveals Costco's revenue sources and the effectiveness of its sales and marketing strategies. By analyzing revenue trends, analysts can assess the company's ability to generate consistent and sustainable income. Secondly, the income statement highlights Costco's profitability through gross, operating, and net profit metrics. These figures enable analysts to evaluate the company's operational efficiency, cost management, and pricing strategies. They also provide insights into the company's ability to generate profits from its core operations.

The income statement allows for the identification of potential areas of improvement. By examining line items such as operating expenses, analysts can pinpoint cost inefficiencies or excessive spending, suggesting opportunities for cost optimization and increased profitability. Furthermore, the income statement aids in forecasting and budgeting processes. Historical data on revenue and expenses can be used to project future performance, helping investors and analysts make informed decisions.

A thorough understanding of Costco's income statement is essential for financial analysis as it provides valuable information on revenue generation, profitability, cost management, and future prospects. It is a basis for evaluating the company's financial health and making informed investment and strategic decisions.

Sample: 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.  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

In this section, I provide an in-depth analysis of Costco's balance sheet by examining key line items. Each line item, such as cash, property, plant and equipment, and liabilities, is thoroughly defined and discussed. By reviewing Costco's balance sheet over a period of five years (2016-2020), I offer a comprehensive summary analysis of the company's important balance sheet components.

For several reasons, understanding Costco's balance sheet is crucial for financial analysis. It provides insights into the company's financial position, asset structure, and leverage. Investors can assess Costco's liquidity and ability to meet short-term obligations by examining line items like cash. The property, plant, and equipment analysis helps evaluate the company's long-term investments and operational capabilities. Liabilities indicate the company's debt levels and financial obligations.

Analysts can gain a deeper understanding of Costco's financial health, asset management, and capital structure by delving into these important balance sheet line items. This information aids in making informed investment decisions and assessing the company's ability to sustain growth and profitability over time.

Importance of Costco's Balance Sheet for Financial Analysis

The balance sheet is a crucial financial statement that provides valuable insights into a company's financial health, and understanding Costco's balance sheet is vital for comprehensive financial analysis. There are several reasons why the balance sheet is significant in assessing Costco's financial position. The balance sheet allows analysts to evaluate Costco's liquidity and solvency. One can determine the company's ability to meet short-term obligations and assess its financial stability by examining line items such as cash, receivables, and liabilities.

Secondly, the balance sheet provides insights into Costco's asset structure. Items like property, plant, and equipment reflect the company's infrastructure investment and operational capacity. Additionally, analyzing inventory levels can indicate the company's ability to manage its supply chain efficiently. Further, the balance sheet helps assess Costco's capital structure and leverage. Analysts can evaluate the company's risk profile and financial leverage by examining the proportions of debt and equity.

Understanding Costco's balance sheet allows for a comprehensive evaluation of its financial position, liquidity, asset management, and capital structure. This information is essential for making informed investment decisions, assessing the company's financial health, and predicting its future performance.

Sample - 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 organization's current assets.  A better strategy would be for the firm to maintain its disciplinary ways and grow its cash position moderately, similar to its revenue growth and 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

In this section, an analysis of Costco's financial ratios from 2016 to 2020 is conducted. Each financial ratio is defined, and its calculation formula is provided. A comprehensive review of Costco's important financial ratios is presented, offering valuable insights into the company's financial performance and stability.

Financial ratios are crucial in assessing Costco's profitability, liquidity, efficiency, and leverage. They provide a quantitative framework for evaluating the company's financial health and performance over time. By analyzing key ratios such as profitability ratios (e.g., return on assets), liquidity ratios (e.g., current ratio, quick ratio), efficiency ratios (e.g., inventory turnover, asset turnover), and leverage ratios (e.g., debt-to-equity ratio, interest coverage ratio), one can gain a deeper understanding of Costco's financial position and make informed decisions.

Analyzing these financial ratios helps identify trends, strengths, and areas of improvement within Costco's financial performance, enabling investors and analysts to assess the company's overall financial strength and make informed investment decisions.

Importance of Costco's Financial Ratios for Financial Analysis

Financial ratios are vital tools for conducting a comprehensive financial analysis of Costco. These ratios provide valuable insights into the company's financial performance, efficiency, profitability, liquidity, and solvency. They allow investors, analysts, and stakeholders to evaluate Costco's financial health, assess its ability to generate profits, manage its resources, and meet its financial obligations.

By analyzing key financial ratios such as return on equity (ROE), return on assets (ROA), gross margin, operating margin, current ratio, and debt-to-equity ratio, one can gain a deeper understanding of Costco's operational efficiency, profitability, liquidity, and leverage. These ratios enable comparisons with industry peers and benchmarking against historical performance, providing context for evaluating Costco's relative financial strength. Further, financial ratios facilitate trend analysis over multiple periods, highlighting the company's financial performance and potential patterns or shifts in its business operations. They are early warning indicators of financial distress or inefficiencies, allowing stakeholders to identify potential risks and make informed decisions.

Overall, financial ratios play a crucial role in assessing Costco's financial position, identifying areas of improvement, and informing strategic decision-making for investors, analysts, and other stakeholders.

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 the 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.