Costco Essay

1288 Words Mar 27th, 2014 6 Pages
To: Margarita Torres, Investor in Costco
From: MSF Analyst
Date: 6th November 2013
Subject: Evaluation of Costco Operational Forecasting

The purpose of this memo is to provide an analysis and valuation of Costco’s forecasted operational performance over the next 10 years.

Appropriation of the Five Factors:
Given that the market is highly competitive, the forecast undertaken for the number of warehouses was a conservative approach along with a 5% increase in the no. of US stores. Refer to Appendix 1.

Sales per
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The management should define the ROE & ROA targets to foresee its effectiveness in future performance.

* Industry specific factors: The forecast lacks a common analysis forecast that will determine or define whether the analysis is too aggressive or conservative for example. Having a general idea of the effect of the competitors’ actions/plans will help in defining the overall expectations.

* Few economic indicators that affects the overall results of Costco. An economic forecast of the overall performance of the US/internationally will contribute to define how much of the pre-tax income it can keep. Additionally the economic forecast will define inflation that will affect its overall revenues, however at a lesser extent.

The considered factors of the analysis are appropriate; however they cannot complete a constructive conclusion on an investment unless the ROE/ROA is considered as well as the aforementioned additions.

Assumptions review:
There are a few observations regarding the changes from the historical data to the change in Margarita assumptions forecast (2001 – 2010) keeping in mind for a 10 year period consider to be a long period and a lot of changes can occur in the market , changes are as the following:

* Membership growth: the

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