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6. How well is Costco performing from a financial perspective? Do some number-crunching using the data in case Exhibit 1 to support your answer. Use the financial ratios presented in Table 4.1 of Chapter 4 (pages 104-105) to help you diagnose Costcos financial performance.
Table:44s Key Financial Ratios: How lo Calculate Them and What They Mean How Calculated What It Shows rofitability ratios Gross profit margin Revenues Cost of goode sold Revenues Shows the percentage of revenues available to cover operating expenses and yield a profit Higher is better, and the trend should be upwarnd Operating profit Reverues-Operating expensen Shows the profitability of ourrent operatione without regard to interest charges and income taxes. Higher is better, and the trend should be upward or return on sales) Revenues 3. Net profit margin shows after-ta× profits por dollar of senses Higher is better, and the trend should be upwarc Profits after taxes or net return on eales) Return on total Profits after taxes Interast Total assets A measure of the return on total investment in the enterprise. Interest is added to after- tax profits to formn the numerator. since total assets are ineneed by oreditors 8s well as by stockholders. Higher is better, and the trend should be upward s. Return on equity 6. Earnings Shows the return stoekholders are earning on Proits after taxes Total stockholders equity ders air irvestment in the onterprse. A return in n shoula be uvange i snowe the earnings for eaoh share of oommon Profits ater share stock outstanding . and ine biggor the annual percentage gaine the bottor Liquidity ratios Current “ab..itie。 an De ted to the near tom.latio should deinitely be higher than 1Oratios of 2 or higher are better stih bilities 2. Cauick ratio or acid-toat ratio) Bigger amounte are better because the company hes more internal funde available o C1) pay it Ourrent Habilities ona timely 3. Working capital borrowing or raising more equity cnpital Leverage retion Total debt perations. Low te inance the roed fun
2. Long-term debt-to- How Caloulated What it Shows capital ratio Long-term debt Long-torm dobt +Total stockholde An important measure of oreditworthiness and balance sheet strength. Indicates the percentage s oquityof capital ivestment which has been financed by creditors and bondholders. Fractions or ratios below .25 or 25%. are usually quite satisfactory since monies invested by stockholders account for 75%, or more of the companys total capital The lower the ratio, the greater the capacity to borrow acditional funds. Debt-to-cepital ratios above 50%, and certainly above 75% ir heavy and perhaps excessive reliance on debt dicate a lower 3. Debt-to-equity ratio Total stockholders equity Should usually be less than 1.o. High ratios especially above 1.0) signal exeessive dobt. sheet strength Shows the batance betweon debt and equity in ss, and weak 4 Long-term debt-to Long-tem debt Total etockholders equity equity ratio indicate greater funds if needed 5. Times-interest- Operati earned or coverage) ratio Measures the ability to pay annual interest charges Lenders usually insist on a minimum ratio of 2.0,but ratios above o.O signal better oreditworthiness Aotivity ratios 1. Days of inventory Messures inventory manag Fower days of inventory are usually better. ement efioiency cost of 900d6 0olg36s Goet of poods old 2Inventory tharnover Monsures the number of inventory turne per year Higher is better Indicates the average length of time the firm payment. A shorter collection time is better 3,Average colleotion perio otal aalos+365 Other important financial measures 1.Dividend yield on Annun share A measure of the rurn to owners received in the form of dividends PVE ratios above 2o indioate strong investor likely to grow slowly typically have ratios below 12 Current market price per share 2. Price/earnings (P/) Curent market erice per share Eaminngs per share indicates the percentage of after-tax protits Annual dividends per share Eamings per share a. Diuidend payout 4Internal cash flow Ater-tax profits+Depreciation A quick and rough ostimate of the cash t of operating expenses, interest, ancd
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Fiscal Years Ending on Sunday Closest to August 31 2015 2014 Gelected Income Statement Data 2016 Merchandise inventories Current assets Current liabilities Net property and equipment Total assets 2013 8.969 8,908 8,456 7.894 6,638 40152.490 15,218 17,299 17,588 15,840 13,706 8,238 3470 15,575 16,540 14,412 13.257 12.050 6,761 3,404 7.04315,40114,830 13,881 12.432 2005 7,790 33,163 33,440 33,024 30,283 26,761 16,514 4,061 4,864 5,093 4,998 2,153 12079 10,843 12,515 11,012 12,573 8,881 4240 4,834 8,634 790 Stockholders equity Cash Flow Data vet cash provided by operating activities $3,292 $4.285 $3,984 $3,437 $3,198 $1,773 $1,070 Warehouse Operations Warehouses at beginning of year 686 663 New warehouses opened (including 634 608 572 417 292 26 Existing warehouses closed (including relocations) 26 24 25 Warehouses at end of year Net sales per warehouse open at year- 715 686 663 634 592 433 313 end (in millions) $161.0 $165.7 $164.0 $162.0 $147.1 $119.8 $101.0 Average annual growth at warehouses open more than a year 7% 6% 10% 11% Members at year-end Businesses (000s) Gold Star members (000s) Add-on cardholders (employees of busi- 7,300 7,100 6,900 6,600 6,300 5,000 4.200 36,800 34,000 31,600 28,900 25,000 16.200 10,500 ness members, spouses of Gold Star members) 42,600 40,200 37,900 35,700 32.700 86,700 81,300 76,400 71,200 64,000 n.a. Total cardholders Prior to 2011, the companys warehouses-30 of which were opened in 2007 and two others in 2008-2009-were consolidated and reported as part of Costcos total operations at the beginning of fiscal 2011 Sales for new warehouses opened during the year are annualized. Note: Some totals may not add due to rounding and the fact that some line items in the companys statement of income were not included in this summary, for reasons of simplicity Sources:Company 10-K reports for fiscal years 2000, 2005, 2011, 2013, 2015, and 2016
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The company is doing well as in the Exhibit 1 the net sales in 2000 was $31,621 while from 2014-16, it has increased very much like In 2016 the net sales is $116,073 which is a big figure as we compared to other fiscal years.Costco’s sales totaled about 71 billion at 544 warehouses in 40 states, more than 50 of the warehouses exceeded sales of 200 million annually and 2 of the stores had sales beyond $300 million.The amount of stores closed does not even compare to the amount that have stayed open. Overall from a financial view Costco is very well off from figures presented.

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