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Portfolio Assignment Option 2 Costco Wholesale Corporation

Portfolio Assignment Option 2 Costco Wholesale Corporation


Costco wholesale corporation, best known as Costco, is an American corporation specializing in wholesale business with its worldwide warehouses. Costco began operations in Seattle in 1983 after being registered as Wholesale Corporation. Its action is based on membership in Canada, the U.K., Iceland, Japan and the United States of America, and other subsidiaries. In 2017, Costco operated 741 warehouses and had its shares listed in the stock market under the symbol COST, with its stock traders coming from NASDAQ global market (Nasdaq,2018).

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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’s mission is to continually provide its members with quality goods and services at the lowest possible prices. To achieve its purpose, Costco conducts its operations with the following Code of Ethics in mind;

  • Obey the law
  • Take care of members
  • Take care of employees
  • Respect for vendors

Costco’s Vision

Costco Wholesale has not released an official vision statement. However, the company’s history implies that its original vision statement is to be “a place where efficient buying and operating practices give members access to unmatched savings.”

Costco’s Contributions

The Commitment to Quality. Costco warehouses carry about 4,000 SKUs (stock-keeping units) compared to the 30,000 found at most supermarkets. By carefully choosing products based on merit, price, brand, and features, the company can offer the best value to members.

Entrepreneurial spirit. Throughout the decades, the entrepreneurial drive for excellence has continued to define Costco staff at every level. From its management team to the people on the warehouse floor, everyone is united in a common goal to exceed member expectations.

Employee focus. Costco is often noted as more employee-focused than other Fortune 500 companies. The company has created a workplace culture that attracts positive, high-energy, talented employees by offering fair wages and top-notch benefits.

Costco serves over 10 million members across Canada and is one of the nation’s largest retailers, averaging CDN$ 15 billion in annual sales.

The company faces high competition from rivals in the retail industry because their products are similar. To overcome this challenge, Costco corporation undertakes product differentiation and provides good quality products and services at an affordable price. The corporation faces stiff competition from, BJ, and Target.

The table below includes the number of shares purchased and the price average per stock.

Period The total amount of Purchased Shares 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

Employee data

As of 2017, the table below shows the number of employees working for Costco.

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

The relationship between Costco and its employees is excellent, as portrayed by the existence of a union its members have been registered in; as per the 2017 NASDAQ report, 15,600 of the employees are union members.

Customer Data

Customers at Costco can apply for a membership renewed annually at a fee. These members can shop at Costco over the membership period. Costco has 81 million members, and all these members can access all the bargains Costco offers throughout the year. At Costco, an executive membership allows members a 2 percent yearly purchase reimbursement. This membership is recognized worldwide, and members can utilize it. Some members have Gold Star membership for individuals only, whereas business membership is issued to those with licenses or business organizations NASDAQ (2018).

The membership data is given in the table below 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

Costco’s standing throughout the years

Costco’s History

The Costco story begins in 1976, when entrepreneur Sol Price introduced a groundbreaking retail concept in San Diego, California. Price Club was the world’s first membership warehouse club, where efficient buying and operating practices gave members access to unmatched savings; at first, Price Club was limited exclusively to business members, who could purchase a wide range of supplies and wholesale items. Jim Sinegal, the executive vice president of merchandising, distribution, and marketing, was instrumental in fine-tuning the merchandise and marketing strategies, helping to turn Price Club into a success story that changed the face of retailing worldwide.

Notable accomplishments

Seven years later, Jim Sinegal channeled his expertise into co-founding Costco Wholesale with Jeff Brotman, and together they opened the first warehouse in Seattle, Washington, in 1983.

Over the next decade, Price Club and Costco Wholesale continued to innovate and grow. In 1993, the two mega-retailers merged, creating a skilled leadership team that soon made Costco the world’s most successful warehouse club.

Current situation

Today, as the company evolves, it stays true to the qualities that helped attract and retain millions of loyal members around the globe:

Analysis of Costco Going Concern

The economic study undertaken in this paper shows that Costco is in good financial health and is expected to last for the foreseeable future. According to NASDAQ 92018) report, the statement presented in this paper constitute forward-looking statements that are within the meaning of “the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934”. The statements presented include conditions or developments and events expected to occur in the future and relate to sales growth, improvement in utilization of assets under total assets turnover, return on equity, debt to equity ratio, liquidity ratios, and earnings per share which are expected to improve and maintain to foreseeable future. All the ratios calculated for Costco indicate good financial health and are expected to operate for a while without fail; there is no indication from the calculated ratios that show a severe threat regarding the company’s operations in the future. Costco’s competitive strategy that the management has undertaken includes the use of the current competitive technology that has not been implemented by the rivals, other incentives such as stock-based expense compensation that have been put in place are also very crucial in obtaining a competitive advantage; elements of accounting, finance, probability, and statistics are used to interpret if an organization is either going to be successful or going to fail.

Accounting elements

All the financial ratios, which are debt ratios, earnings per share, and return on equity, among others, calculated according to NASDAQ 2018 reports, portray a positive picture of Costco company and show an increasing trend over the years for the past three years.

According to the 2018 10K report, The Company had entered into several short-term bank credit facilities; during 2017, it had increased from $429 to $833 because there was an addition of rotating credit extension worth $400 in the U.S., which was due to expire on June 2018. These credit facilities had no outstanding borrowing at the end of 2017 and 2016. Hence, Costco had a good credit management policy that shielded it from using too much leverage ratio, which can be risky to the company’s going concern. During 2017 short-term borrowings had no material value. According to NASDAQ 2018, All the financial ratios from the accounting perspective presented no threat that the organization would face soon except for some adjustments.

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.

Financial elements

According to the 2018 Form 10K, Costco had no significant financial risk; the debt-to-equity ratio calculated presents no material leverage risk, and therefore, it is recommended for the company to use more leverage to achieve profit benefits that come along with the high advantage. As per Nasdaq (2018), Costco has more prominent financial assets, better access to stock, and more prominent market entrance than other retailers in the industry.

Probability and Statistics

Based on estimated sales returns, authentic patterns, and stock expenses in like manner, Costco sales returns hold on a gauge of the reasonable net estimation of stock. Sums gathered from individuals’ sales and value-added tax are recorded on a net basis. From the calculated ratios trends, all the financial ratios are identified to be within the standard economic threshold of an industry.

Key Statistics and Financial Ratios


Profitability 2017 Leverage 2017
Net Inc/Comm Equity 0.46 Total Liab/Total Assets 0.70
Net Inc/Total Assets 0.07 Total Liab/Inv Cap 1.36
Net Inc/Inv Cap 0.14 Total Liab/Comm Equity 4.41
Pretax Inc/Net Sales 0.03 Interest Coverage Ratio 31.14
Net Inc/Net Sales 0.02 Curr Debt/Equity 0.01
Cash Flow/Net Sales 0.05 LTD/Equity 0.61
SG&A/NetSales 0.10 Total Debt/Equity 0.62
Asset Utilization Liquidity
Net Receivables Turnover 96.14 Quick Ratio 0.43
Inventory Turnover 11.90 Current Ratio 0.99
Inventory Day Sales 0.03 Net Rec/Curr Assets 0.08
Net Sales/Work Cap -724.86 Inv/Curr Assets 0.57
Net Sales/PP&E 7.10


Positive attributes

Costco Wholesale Corporation’s case shows that the business continues to grow and expand. The company now has operations in overseas locations, such as Taiwan. The firm is among the most prominent retail organizations in the world today.

Negative attributes

As a retail firm, Costco depends on consumer purchasing capacities. Consumer perceptions also have a significant impact because the competition is high in the retail market. Competition from firms like Walmart is especially notable. Costco must maintain a competitive advantage to ensure long-term viability. At present, the ability of this company to continue growing and expanding is based on its affordable quality goods and services.

Trading Volume

The table below shows Costco trading volumes in millions except per share data. The statements of Income are in millions except for the per-share data.

53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
September 3,
August 28,
August 30,
Net sales $ 126,172 $ 116,073 $ 113,666
Membership fees 2,853 2,646 2,533
Total revenue 129,025 118,719 116,199
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
Interest expense (134 ) (133 ) (124 )
Interest income and other net 62 80 104
Provision for income taxes 1,325 1,243 1,195
Net Income, including noncontrolling interests 2,714 2,376 2,409
NNet Income attributable to noncontrolling interests (35 ) (26 ) (32 )
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

 Stock Price Analysis (NASDAQ, 2018)

The Stock Price analysis above for Costco corporation shows Costco as a profitable endeavor as of 2018-08-06; its quote equals 221.390 USD. A long-term increase is expected; from the forecasts, the “COST” stock price prognosis for 2023-08-02 is 351.114 USD. As depicted in the trend line below, Costco is expected to grow in the foreseeable future.

What were 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 indicate any problems the company may be experiencing.

Financial Analysis (Financial Ratios)

Financial ratios calculated from figures are reported in financial statements. These ratios portray the company’s financial health compared to the industry. They can compare with previous ratios of the company to note trends and gaps that may exist Hayes (2018).

Discussion of Earnings per share (EPS)

According to Jean (2018), Earnings per share represents the company’s profit portion allocated to the outstanding common stock share and indicates a company’s profitability.

EPS = net income / average outstanding common share

Eps is the share of profit for the company, each outstanding common stock share allocated. This is calculated by dividing the net Income by the outstanding number of shares during the financial period. In the financial statements, Eps and revenue summary use diluted EPS due to dilution from stock options, preferred stock, and preferred warrants.

Year Sales Net Income EPS
09/2015 105,156.00 2,039.00 4.63
09/2016 112,640.00 2,058.00 4.65
09/2017 116,199.00 2,377.00 5.37
Growth Rates 5.25 7.06 3.58

According to NASDAQ (2018) Company’s worth fundamental analysis depends on Revenue and Earnings Per Share (EPS) by providing EPS, Revenues, and dividends of a company by year and quarter on a single page for past financial periods up to three years. Revenue and EPS changes influence the share prices; these two summaries are provided on a single page. This is critical information to investors since they can quickly compare financial information contained in these statements from year to year and more information provided quarterly, from quarter to quarter to a period of the past three years. Revenue and EPS change significantly influence the long-term price of the company’s stock. The growth of this financial information results in long-term share appreciation, and therefore for Costco investors to make a comparison of Revenues and EPS from each year’s quarter to the same quarter the in the next year period, it is essential to make a comparison of sequential quarters of EPS and the revenue growth

These data are crucial for all company’s stakeholders in monitoring the company’s performance.

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

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%

According to (Arthur, 2017), the gross margin is the ratio showing the profit level that the company makes after the cost of goods payments has been made. It is shown as a percentage of revenue referred to as gross profit. The case of Costco COGS shows that it has been making a trending gross profit of 11 percent since 2005. This portrays slow progress, and hence the management should put more effort into improving the performance of the gross profit achieved.

Return On Assets

Return on Assets (ROA) is computed by dividing Net Income by the Total Assets. This is the proportion that gives an organization’s effectiveness in utilizing its investments in profit generation. A lower ratio portrays an underutilization of the company’s assets; according to Costco’s financial statements, ROA portrays a positive trending value ranging between 5% and 7% since the year 2000, and these depict a proper utilization of resources.

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%

Return On Equity

Return on Equity (ROE) is calculated by dividing the Net Income by the Total Stockholders’ Equity. This ratio calculates a company’s profitability by finding the percentage return on stakeholders’ equity. It provides the company’s effectiveness in creating Income for the stakeholders. In the case of Costco, high positive growth is portrayed by the below-calculated values. This provides positive information about investing in the company since it has a good return.

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 Revenue
            Return on revenue is calculated by dividing Net Profits by Revenue amount. This includes the comparison of the net profit and the Income. If there is a higher ratio, it portrays that an organization’s revenue is lower than the net profits, and in that case, an organization must look for ways to increase the net Income. Costco Corporation has a ratio within the required profitable threshold, as shown in the calculations below. For Costco to further improve on return on revenue, a business can increase profit by changing the company sales mix or by cutting expenses.

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

Total Asset Turnover

Total assets turnover is calculated by dividing revenue or the net sales by the Total assets, and it is an efficiency ratio showing the ability of the company to generate by utilizing its assets. It indicates how effectively the organization is using its assets to generate revenue.

Costco has a high asset turnover; an organization with a high asset turnover ratio can work with fewer resources than fewer active competitors, thus requiring less obligation and equity. The outcome ought to be a similarly more prominent return to its shareholders, indicating an efficient Costco company operation.

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
This ratio is figured by dividing Total Liabilities by the Total Stockholders’ Equity. The debt-to-equity ratio indicates the capacity of an association to cover its debts. Costco’s Debt to Equity ratio demonstrates its ability to pay its obligations. According to the results calculated below, it indicates that Costco is utilizing financial leverage to increase the level of profits to earn; therefore, it is recommended that Costco use more economic force by taking more debts; this shows that it has an advantage of increased earnings that financial leverage brings.

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

 Costco’s Management

Costco Wholesale Corporation maintains its position as the second biggest retailer in the world through successful operations management (OM). The ten strategic decisions of operations management tackle the operational concerns in various business areas. Costco has different operations management practices based on varying market conditions worldwide. However, Costco has developed standards and policies for operations management throughout the organization in general. As such, Costco’s standardization helps ensure consistency and a unified direction for operations management toward the long-term fulfillment of its mission and vision.

 Costco’s future

In conclusion, the loyalty of Costco’s customer base showed up in the growth rates for the company’s membership fee revenue, which was higher by about 12.5%. Slow but steady expansion efforts continued with the opening of a few new store locations during the quarter, and Costco also likely benefited from the decision from rival Sam’s Club to close a substantial number of its warehouse locations. Costco should maintain its current customer base and increase diversification in its marketing to attract more loyal customers; from the above analysis, it is concluded that Costco is doing well and still have got bright future due to its ever-increasing sales volume and customer base.

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

NASDAQ.( 2018). Costco Wholesale Corporation Stock Chart. Retrieved from

Nasdaq. (2018). United States Security and Exchange Commission. Costco Wholesale Corporation. Retrieved from

Folger, Jean (2018) “What is the formula for calculating earnings per share?” retrieved from

Costco Wholesale Corp. (COST) (2018) retrieved from https://www.stock-analysis-                 

Hayes, Adam (2018) “Ratio Analysis: Using Financial Ratios” Retrieved from                                       

Taylor, K. (2016). “Costco is becoming one of America’s favorite places to buy a car    thanks to one.” Retrieved from: industry-power-is-growing-2016-2

Lutz, A. (2016). “Costco’s simple strategy for outperforming Wal-Mart and Target.”.Retrieved from : simple-            strategy-for-outperforming-Wal-mart-and-target


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Portfolio Assignment Option #2 – Evaluate a Publicly Traded Company of Your Choice

Your company choice should have been submitted to your instructor in the Module 1 Portfolio Project Topic Selection discussion.

The second Portfolio Project option allows you to select your publicly traded company.

You will write a paper, 8 to 10 pages in length, well-written, and formatted per CSU-Global Guide to Writing and APA.

Research your selected organization using 5-7 credible sources, at least three of them scholarly. The CSU-Global Library is a good place to search for credible and scholarly sources. You can find historical company financials in the CSU-Global Library using LexisNexis and Datamonitor (via EBSCOhost) and at the SEC.GOV website.

Portfolio Assignment Option 2 Costco Wholesale Corporation

Portfolio Assignment Option 2 Costco Wholesale Corporation

Analyze your selected organization’s accounting and financial issues per the following elements:

  • 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 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 indicate any problems the company may be experiencing.
  • In your estimation, will this organization be around for a while, or is it destined to fail? What quantitative evidence can you show for your choice? At a minimum, you should discuss the elements of accounting, finance, probability, and statistics that indicate whether the organization will either last or fail.

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