Question

Use the table below and Morningstar data to compare and explain Costco’s financial performance superior to that of its competitors (Walmart and BJ's Wholesale Club). (write by your own words)

Costco Walmart 2018 BJ Direction Analysis 2018 2016 Rating Profit ability ratios Operating profit margin % up SG&A Net profit margin 2017 2015 2017 2018 2017 good bad good 3.16 9.8 2.21 3.19 10.4 2.08 3.09 10.17 1.98 3.12 9.85 2.05 4.1 21.29 1.97 4.7 20.96 2.81 1.73 15.82 0.39 1.75 15.45 0.36 down up Liquidity ratios Current ratios Activity ratios Inventory Turnover Days of Inventory up good 1.02 0.99 0.98 1.05 0.76 0.86 0.91 1.05 good good 11.8 30.93 11.9 30.67 11.51 31.37 11.64 31.36 8.6 42.44 8.26 44.21 10.25 35.6 9.91 36.84 up

Answer 1

Profitability ratio:

Operating profit margin % of Costo was down is the year 2016 but then it increased for 2 consecutive years i.e. 2017 and 2018. On the other hand, both Walmart and BJ's operating margin % has been decreasing continuously.

Selling, General and Administrative expenses(SG&A) of costo is decreasing since 2016 and on the other hand, both walmart and BJ's SGA is increasing.

Apart from this, Net margin % of Costo is also increasing since 2016 where the net margin of Walmart & BJ is decreasing.

This all means that Costo is that more efficient that Walmart and BJ, operation-wise.

Liquidity ratio:

The current ratio is also following a similar trend which means in the short run, Costo is more financially stronger than the other two companies.  

Activity ratio:

Costo's both inventory turnover and days of inventory is following the good trend (decreasing and increasing respectively) over the years as compared to the other two companies. This means it more efficient is converting its revenue into cash than the other two companies.