Costco Wholesale Corporation Evaluation

Costco Wholesale Corporation Evaluation

Costco Wholesale Corporation began operating in 1983 in Seattle. The operation of the warehouse was based on membership in the United States, Canada, the UK, Iceland, France, Japan, and other subsidiaries in Korea. As of September 2017, the number of warehouses that Costco operated was 741. The number of warehouses in 2016 and 2015 was 715 and 686, respectively. Costco has stock traders in the NASDAQ global market and uses the symbol COST (Nasdaq, 2018). As Costco continues to grow, a variety of external threats and opportunities will impact it. A critical success factor for the company is the provision of quality goods at meager prices. Costco faces competition from other warehouse clubs, which include Walmart, the largest retail business, BJ’s Club, Target, Kohl’s, and Amazon.com. Walmart competes directly with Costco through its Sam’s Club subsidiary and also through its Supercenters, which sell similar types of goods at low prices as well.

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Share prices: The values are dollars in millions except the per-share data.

Period	Number of Shares Purchased	The average price per share
May to June 2017	92,000	171.87
June to July 2017	573,000	162.00
July 3 to July 30, 2017	451,000	155.06
July 31 to September	396,000	156.95
Total	1,512,000	156.95

Employees

The number of Costco employees as of 2017 was as follows:

Full-time employees	133,000	126,000	117,000
Part-time employees	98,000	92,000	88,000
Total employees	231,000	218,000	205,000

Of all the employees, 15,600 of them are union members; therefore, Costco considers their relations with the employees to be very good.

Customer Data

The customers who are able to shop at Costco are its members who apply an annual membership fee. The number of members that Costco has is more than 81 million members. The members are able to access all the bargains that Costco offers throughout the year. Some members pay for executive membership, which gives them a 2 percent reimbursement for all their purchases. The members can utilize their membership worldwide. Gold Star membership is available to individuals, while the business membership can only be issued to businesses or those with a license for their business. The membership data is as follows in thousands:

	2017		2016		2015
Gold Star	38,600		36,800		34,000
Business, including add-ons	10,800		10,800		10,600
Total paid members	49,400		47,600		44,600
Household cards	40,900		39,100		36,700
Total cardholders	90,300		86,700		81,300

Trading Volume

The statements of income are in millions except for the per-share data.

	53 Weeks Ended	52 Weeks Ended	52 Weeks Ended
	September 3, 2017	August 28, 2016	August 30, 2015
REVENUE
Net sales	$126,172	$116,073	$ 113,666
Membership fees	2,853	2,646	2,533
Total revenue	129,025	118,719	116,199
OPERATING EXPENSES
Merchandise costs	111,882	102,901	101,065
Selling, general and administrative	12,950	12,068	11,445
Preopening expenses	82	78	65
Operating income	4,111	3,672	3,624
OTHER INCOME (EXPENSE)
Interest expense	(134)	(133)	(124)
Interest income and other, net	62	80	104
INCOME BEFORE INCOME TAXES	4,039	3,619	3,604
Provision for income taxes	1,325	1,243	1,195
Net income including noncontrolling interests	2,714	2,376	2,409
Net income attributable to noncontrolling interests	(35)	(26)	(32)
NET INCOME ATTRIBUTABLE TO COSTCO	$2,679	$2,350	$2,377
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO COSTCO:
Basic	$6.11	$5.36	$ 5.41
Diluted	$6.08	$5.33	$ 5.37
Shares used in the calculation (000’s)
Basic	438,437	438,585	439,455
Diluted	440,937	441,263	442,716
CASH DIVIDENDS DECLARED PER COMMON SHARE	$8.90	$1.70	$ 6.51

Stock Price Analysis (NASDAQ, 2018)

The three-year analysis of Costco Wholesale Corporation shows that it is moving down. Therefore, it foreshadows problems for the organization. The stock price has reduced by 1.13 % from 2.51 US dollars to 219.21 dollars.

Financial Analysis

Gross Margin (Arthur, 2017)

Formula: Gross Margin = (Sales – COGS) / Sales

Year	Sales	COGS	GROSS MARGIN
2017	113,666	101,065	11%
2016	110,2012	98,458	11%
2015	102,870	91,948	11%
2011	87,048	77,739	11%
2005	51,862	46,347	11%
2000	31,621	28,322	10%

The gross margin shows how much profit a company makes after paying off the cost of its Cost of Goods. This ratio shows the percentage of the revenue that is retailed as the gross profit. The COGS for Costco corporation shows that it is making a gross profit of 11 percent, which is relatively constant throughout the years. This shows slow progress, and more should be done to increase their profit margin.

Return On Assets

Formula: Return on Assets (ROA) = Net Income / Total Assets

Year	Net Income	Total Assets	ROA
2017	2377	33440	7%
2016	2058	33024	6%
2015	2039	30283	7%
2011	1462	26761	5%
2005	1063	16514	6%
2000	631	8634	7%

The Return on Assets ratio shows the efficiency a company has in using its investments to generate profit. A low ratio shows that the organization is not properly utilizing its resources and holding on to a lot of its assets. The percentages for Costco corporation show a proper utilization of its assets.

Return On Equity

Formula: Return on Equity (ROE) = Net Income / Total Stockholders’ Equity

Year	Net Income	Stockholder equity	ROE
2017	2377	10843	22%
2016	2058	12515	16%
2015	2039	11012	19%
2011	1462	12573	12%
2005	1063	8881	12%
2000	631	4240	15%

Return on equity measures the profitability of an organization and calculates the amount of percentage return on stockholder equity. It shows the effectiveness of a company in creating income for its stockholders. The return on equity for Costco shows positive growth. Investing in the company, therefore, has good returns.

Return On Revenue

Formula: Net Profits / Revenue

Year	Net Profits	Revenue	ROR
2017	2377	116199	2%
2016	2058	112640	2%
2015	2039	105156	2%
2011	1462	88915	2%
2005	1063	52935	2%
2000	631	32164	2%

The return on revenue compares the net profit and the revenue; a higher ratio shows that the net profit for the organization is lower than the net profits, in which case an organization must, therefore, consider ways to increase the net income. In the case of Costco Corporation, the ratio shows that the corporation is operating at the required ratio.

Total Asset Turnover

Formula: Revenue / Total Assets

Year	Revenue	Total Assets	Asset Turnover
2017	116199	33440	347%
2016	112640	33024	341%
2015	105156	30283	347%
2011	88915	26761	332%
2005	52935	16514	320%
2000	32164	8634	373%

Debt To Equity

Formula: Total Liabilities / Total Stockholders’ Equity

Year	Total Liabilities	Stockholder equity	Debt to Equity
2017	16540	10843	1.52540809739002
2016	14412	12515	1.15157810627247
2015	13257	11012	1.20386850708318
2011	12050	12573	0.958402926906864
2005	6761	8881	0.761288143227114
2000	3404	4240	0.802830188679245

Debt to equity shows the ability of an organization to take care of its debts. The ratio for Costco shows that it is capable of paying off its debts. It also shows that the company is not taking advantage of the increased profits that financial leverage will bring.

References

Arthur, A. Thompson, Jr. (2017) Costco Wholesale in 2016: Mission, Business Model, and Strategy:   University of Alabama

Nasdaq. (2018). United States Security and Exchange Commission. Costco Wholesale Corporation. http://secfilings.nasdaq.com/edgar_conv_html%2f2017%2f10%2f18%2f0000909832-17-000014.html#COST10K90317_HTM_S8BF4AC128FE65A90B72B6A0B7A678B4F

NASDAQ.( 2018). Costco Wholesale Corporation Stock Chart. Retrieved from https://www.nasdaq.com/symbol/cost/stock-chart?intraday=off&timeframe=3y&charttype=line&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=off&index=&drilldown=off&sDefault=true

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Costco Wholesale Corporation Evaluation

Evaluate a Publicly Traded Company of Your Choice

Describe the company’s organization. Provide key statistics and graphs regarding employees, customers, trading volume, and share price for at least the last three years. At a minimum, provide measures of central tendency and dispersion.

What was your organization’s stock price over the last three years? Generate a scatter plot with the vertical axis being the price and the horizontal axis the time. Interpret the scatter plot. Interpret whether the company’s stock price foreshadows any problems or shows only positive gains for the company.

What were some of the organization’s key financial ratios for the last three years? Interpret them. At a minimum, you should discuss earnings per share, liquidity ratios, debt ratios, return on assets, and return on equity ratios. Interpret what these financials mean and if they are indicative of any problems that the company may be experiencing.

• share prices,
• employee data,
• customer data,
• trading volume,
• earnings per share, or
• brief interpretation of data.