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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Question 
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.
Costco Wholesale Corporation Evaluation
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.