Costco Financial Ratios

ORGANIZATIONAL ANALYSIS
Financial Analysis
Analyzing the competitive landscape is critical to assess the overall standing of Costco in relation to its peers. However, a financial evaluation is essential for investment purposes. A glance at the balance sheet (Exhibit 5), income statement (Exhibit 6) and the cash flow statement (Exhibit 7) will support to analyze and understand the organization’s present implementation and evaluate its sustainability. These three reports allow for measuring the financial ratios which supports to compare Costco with its competitors and also compare its past performance.

Liquidity: It is used to evaluate whether the company can clear it’s debts within one year of turning it’s assets into cash. A liquidity ratio

Because their business model is focused on keeping margins incredibly low, they do not fare well to their competitors in terms of gross margin or profit margin. Costco works to keep prices low by buying in huge quantity and never marking up any product more than 15 percent, which is less than the standard 25 percent at a supermarket or 50 percent at a departmental store. Costco makes up for these low margins by charging a $55 annual basic membership and $110 executive membership fee to its 81.3 million members. With more than 90 percent of its members renewing each year, the fee is evidently not a significant

Similar to every other ratio, this ratio also needs to be calculated over time. If the ratio is increasing, then the financial risk is also increasing. However, for Costco it is not a very high ratio but, it is increasing by a thin percentage every year.
Investment Analysis: (Exhibit 11)
The graph in Exhibit 11 shows Costco’s stock price performance in last 5 years. Costco has been a great company from an investment point of view. Costco is one of the S&P 500 companies. It is quite incredible that Costco’s stock growth has outperformed S&P 500 growth on an average. As mentioned in Exhibit 11 one share of Costco is currently trading at a $163.45. At a current price/sales ratio of 0.53 (Exhibit 8), Costco trades at a discount (The smaller this ratio [i.e. less than 1.0] is usually thought to be a better investment since the investor is paying less for each unit of sales.).
Costco has increased its dividend on an annual basis since it first rewarded investors in May 2004 — including the time period of the great recession. The company also paid a one-time dividend of 8.06 in December 2012. Costco currently has a $5613 million cash position, which should certainly give some level of comfort to