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.

Costco Leadership

The current executive team and compensation are as follows.

Executive Team
Executives Title Pay Amount
Craig Jelinek CEO 1.19 Million
Richard Galanti CFO 960k
Paul Moulton CIO 875k
Joseph Portera VP 909k
James Murphy VP 840k

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

Column1 2019 2018 2017 2016 2015
Revenues                  152,703                  141,576                  129,025                  118,719                    116,199
COGS                  132,886                  123,152                  111,882
Gross Profit                    19,817                    18,424                    17,143                  118,719                    116,199
SG&A                    14,994                    13,876                    12,950                    12,068                      11,445
Depreciation                            -                            -                            -                            -                             -
R & D                            -                            -                            -                            -                             -
Other                           86                           68                           82                           78                             65
Operating Expenses                    15,080                    13,944                    13,032                    12,146                      11,510
EBIT                      4,737                      4,480                      4,111                      3,872                        3,624
Other Income                            -                            -                            -                            -                             -
Interest Expense                         150                         159                         134                         133                           124
EBT                      4,765                      4,442                      4,039                      3,619                        3,604
Taxes                      1,061                      1,263                      1,325                      1,243                        1,195
Net Income                     3,659                     3,134                     2,679                     2,350                      2,377
Tax Rate 22.3% 28.4% 32.8% 34.3% 33.2%

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

Column1 2019 2018 2017 2016 2015
Cash                        8,384                    6,055                    4,546                    3,379                    4,801
Short Term Investment                        1,060                    1,204                    1,233                    1,350                    1,618
Account Receivable                        1,535                    1,669                    1,432                    1,252                    1,224
Inventory                      11,395                  11,040                    9,834                    8,969                    8,908
Other                        1,111                       321                       272                       268                       748
Current Assets                    23,485                20,289                17,317                15,218                17,299
Net PPE                      20,890                  19,681                  18,161                  17,043                  15,401
Goodwill                              -                         -                         -                         -                         -
Other                        1,025                       860                       869                       902                       740
Total Assets                    45,400                40,830                36,347                33,163                33,440
Accounts Payable                      11,679                  11,237                    9,608                    7,612                    9,011
Accrued Expense                        3,176                    2,994                    2,703                    2,629                    2,468
Accrued Taxes                              -                         -                         -                         -                         -
Notes Payable                              -                         -                         -                         -                         -
LT Debt - Current                        1,699                         90                         86                    1,100                    1,283
Other                        3,792                    2,924                    2,639                    2,003                    1,696
Total Current Liabilities                        3,792                    2,924                  17,495                  15,575                  16,540
LT Debt                        5,124                    6,487                    6,573                    4,061                    4,864
Other                        1,455                    1,314                    1,200                    1,195                    1,193
Total Liabilities                    29,816                27,727                25,268                20,831                22,597
Common Stock                               4                           4                           4                           2                           2
Treasury                              -                         -                         -                         -                         -
Retained Earnings                      10,258                    7,887                    5,988                    7,686                    6,518
Other                              -                         -                         -                         -                         -
Total Equity                    15,584                13,103                11,079                12,332                10,843
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

Ratios 2019 2018 2017 2016 2015
Current Ratio                           6.19                    6.94                    0.99                    0.98                    1.05
Cash Ratio                           2.21                    2.07                    0.26                    0.22                    0.29
Quick Ratio                           3.19                    3.16                    0.43                    0.40                    0.51
Net Working Capital                         6,459                  4,533                  3,501                  3,359                  3,454

Costco Asset Utilization

Ratios 2019 2018 2017 2016 2015
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
Inventory Turnover                         13.40                  12.82                  13.12                  13.24                  13.04
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
AP Turnover                         13.08                  12.60                  13.43                  15.60                  12.90
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

Ratios 2019 2018 2017 2016 2015
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%
ROCE 11.38% 11.82% 21.81% 22.02% 21.44%
Capital Employed                       41,608                37,906                18,852                17,588                16,900
ROIC 13.46% 13.24% 12.75% 12.46% 12.85%

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