Financial Analysis of Costco Wholesale Corporation
Researching companies without the annual report is like exploring a cave without a flashlight. This analysis of Costco Wholesale Corporation proves stakeholders benefit by using information published in annual reports to analyze the past, present and future financial well-being of publicly traded organizations. Whether one is an investor, a commercial loan officer, financial analyst, or a manager of the corporation, the annual report provides insightful data and information that is crucial in determining profitability, liquidity, debt, risk factors, sustainability, competitive environment and overall health and likely direction of the company.
The four primary financial statements found …show more content…
Several noteworthy items include: Walmart’s cost of revenue consistently runs about 12% lower than Costco; this may indicate Walmart leverages their much larger size and selling capacity when negotiating pricing with suppliers. Selling and general administrative expenses represent roughly 10% of total sales with Costco, while Wal-Mart is almost double at nearly 20%. Since both companies operate on relatively small profit margins, maintaining control of expenses is a key factor in long term sustainability. The percentages show Costco is significantly more efficient with expenses compared to Wal-Mart. Net income percentages show Wal-Mart consistently performs higher at approximately 3.5% versus Costco at 2%. The horizontal trend analysis and comparison of the two income statements shows the direction and degree of change in income statement items from year to year. While Costco revenues, gross profits and net income trend higher from year to year, Wal-Mart remains relatively stagnant in the same catagories by showing under-performing gains compared to the base year …show more content…
Investors like to see increasing ROE percentages because increasing the ROE increases the amount of net income for each dollar invested. The ROE formula is Net income/Total stockholders’ equity. Three additional ratios impacting ROE include net profit margin, which is the percentage of profit remaining after meeting all expenses, total asset turnover rate, which indicates how efficiently corporations use available assets generating revenue. A higher asset turnover indicates better efficiency generating revenue with the assets available. The final ratio impacting the DuPont analysis is the equity multiplier, which indicates the degree that company assets are financed with stockholder equity versus financed with debt. A higher equity multiplier indicates a higher degree of financing assets with debt, Comparing ROE results between Costco and Wal-Mart reveals Costco’s overall improving trend over the three year data period while Wal-Mart’s ROE declined in each of the same three years. When reviewing the DuPont component ratios, it is evident that Wal-Mart’s has higher net profit margins, lower total asset
Researching companies without the annual report is like exploring a cave without a flashlight. This analysis of Costco Wholesale Corporation proves stakeholders benefit by using information published in annual reports to analyze the past, present and future financial well-being of publicly traded organizations. Whether one is an investor, a commercial loan officer, financial analyst, or a manager of the corporation, the annual report provides insightful data and information that is crucial in determining profitability, liquidity, debt, risk factors, sustainability, competitive environment and overall health and likely direction of the company.
The four primary financial statements found …show more content…
Several noteworthy items include: Walmart’s cost of revenue consistently runs about 12% lower than Costco; this may indicate Walmart leverages their much larger size and selling capacity when negotiating pricing with suppliers. Selling and general administrative expenses represent roughly 10% of total sales with Costco, while Wal-Mart is almost double at nearly 20%. Since both companies operate on relatively small profit margins, maintaining control of expenses is a key factor in long term sustainability. The percentages show Costco is significantly more efficient with expenses compared to Wal-Mart. Net income percentages show Wal-Mart consistently performs higher at approximately 3.5% versus Costco at 2%. The horizontal trend analysis and comparison of the two income statements shows the direction and degree of change in income statement items from year to year. While Costco revenues, gross profits and net income trend higher from year to year, Wal-Mart remains relatively stagnant in the same catagories by showing under-performing gains compared to the base year …show more content…
Investors like to see increasing ROE percentages because increasing the ROE increases the amount of net income for each dollar invested. The ROE formula is Net income/Total stockholders’ equity. Three additional ratios impacting ROE include net profit margin, which is the percentage of profit remaining after meeting all expenses, total asset turnover rate, which indicates how efficiently corporations use available assets generating revenue. A higher asset turnover indicates better efficiency generating revenue with the assets available. The final ratio impacting the DuPont analysis is the equity multiplier, which indicates the degree that company assets are financed with stockholder equity versus financed with debt. A higher equity multiplier indicates a higher degree of financing assets with debt, Comparing ROE results between Costco and Wal-Mart reveals Costco’s overall improving trend over the three year data period while Wal-Mart’s ROE declined in each of the same three years. When reviewing the DuPont component ratios, it is evident that Wal-Mart’s has higher net profit margins, lower total asset