Costco Wholesale Corporation Financial Statement Analysis (a)

Introduction

In 2001, Costco was the largest wholesale club in the industry with sales of $34 billion with 365 warehouses. Costco targeted wealthier clientele of small business owners and middle class shoppers. Costco, through its history with Price Club, took great pride in having invented and developed the club warehouse concept. They believed that lowering the unit price of goods was key factor that allowed them to deliver and pass the value to the customer. Costco, was a powerful purchaser, it could demand that production savings be passed on to itself in the form of lower prices. Costco passed these savings on to its own customers. Costco also delivered value to customers by expanding its selection of name-brand products and by adding ancillary services.

Besides offering the lowest cost products, Costco claimed to have the best operating efficiency in the business that resulted in cost-conscious culture. Expenses were minimized through various methods: no-frills warehouse facilities, cross-docking procedures etc. Costco profited richly from this strategy. In 1985, the company had a net loss of $3 million on product sales of $336 million. By 2001, the company’s profit had soared to $602 million on product sales of $34 billion.

This case focuses on Margarita Torres’s financial statement, ratio analysis for Costco Wholesale Corporation. Torres purchased Costco shares in 1997 as part of her personal investment portfolio and she felt it was time to update her analysis and determine if the company was still operating efficiently. This case discusses what factors led to Costco’s operational performance and growth from 265 warehouses to 365 worldwide, and from sales revenue of $21.8 billion to $34.1 billion over the last five years identifying what factors would hold consistent going forward.

Common-Size and Percentage Change Statements Analysis

Costco has two sources of revenue: membership fees and sells of goods. Common-size analysis is using revenue...