Question

Analysis and Interpretation of Liquidity and Solvency Balance sheets and income statements for Costco Wholesale Corporation follow. Costco Wholesale Corporation Costco Wholesale Corporation Consolidated Statements of Earnings Consolidated Balance Sheets For Fiscal Years Ended (5 millions) September 2, 2018 (5 millions, except par value and share data) September 2, 2018 September 3, 2017 Total revenue $141,576 Current assets Operating expenses Cash and cash equivalents $6,055 $4,546 Merchandise costs 123,152 Short-term investments 1,204 1,233 Selling general and administrative 13,876 Receivables, net 1,669 1,432 Preopening expenses 68 Merchandise inventories 11,040 9,834 Operating Income 4,480 Other current assets 321 272 Other income (expense) Total current assets 20,289 17,317 Interest expense 159 Net property and equipment 19,681 18,161 Interest income and other, net (121) Other assets 860 869 Income before income taxes 4,442 Total assets $40,830 $36,347 Provision for income taxes 1,263 Current liabilities Net income including noncontrolling interests 3,179 Accounts payable $11,237 59,608 Net income attributable to noncontrolling interests (45) Accrued salaries and benefits 2,994 2,703 Net income attributable to Costco 53,134 Accrued member rewards 1,057 961 Deferred membership fees 1,624 1,498 Other current liabilities 3,014 2,725 Total current liabilities 19,926 17,495 Long-term debt 6,487 6,573 Other liabilities 1,314 1,200 Total liabilities 27.727 25,268 Equity Preferred stock, 50.01 par value: 0 0 0 Common stock, 30.01 par value: 4 4 Additional paid-in-capital 6,107 5,800 Accumulated other comprehensive loss (1,199) (1,014) Retained earnings 7,887 5,988 Total Costco stockholders' equity 12,799 10,778 Noncontrolling interests 304 301 Total equity 13,103 11,079 Total liabilities and equity $40,830 $36,347 2018 current ratio = 1.02 a) Compute Costco's current ratio and quick ratio for 2018 and 2017. (Round answers two decimal places.) 2017 current ratio = 0.99 2018 quick ratio = 0.46 X 2017 quick ratio = 0.43 X X X b) Compute Costco's times interest earned and its 2018 times interest earned = 0 liabilities-to-equity ratios for 2018 and 2017. In 2017 times interest earned = 0 2017, Costco reported earnings before interest and tax (EBIT) of $4,111 million and interest expense of $134 million. (Round answers two 2018 liabilities-to-equity = decimal places.) 2017 liabilities-to-equity = 0 x x

Answer 1

Answer:

a. CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

YEAR	Working	CURRENT RATIO
2018	$20,289 / $19,926	1.02
2017	$17,317 / $17,495	0.99

QUICK RATIO = (CURRENT ASSETS - INVENTORY - PREPAID EXPENSES) / CURRENT LIABILITIES

YEAR	Working	QUICK RATIO
2018	($20,289 - $11,040 - 0) / $19,926	0.46
2017	($17,317 - $9,834 - 0) / $17,495	0.43

b. TIMES INTEREST EARNED = EBIT / INTEREST EXPENSE

YEAR	Working	TIMES INTEREST EARNED
2018	$4,480 / $159	28.18
2017	$4,111 / $134	30.68

LIABILITIES-to-EQUITY = TOTAL LIABILITIES / SHAREHOLDER'S EQUITY

YEAR	Working	LIABILITIES-to-EQUITY
2018	$27,727 / $13,103	2.12
2017	$425,268 / $11,079	2.28

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