Costco Essay

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

Purpose:
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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