Costco Case Analysis

1. Please summarize the case!

The case is basically shows some key financial performance of Costco as a wholesaler. Indeed Costco has the main competitors in the market which is SAM’s (part of Walmart), BJ wholesaler and SEARS. Margarita Torres, as one of shareholder, is trying to analyze key performance through two methods: ratio analysis and Cash flow Analysis. There are some financial performance that Torres is trying to portray which is Balance Sheet and Income Statement.

From the figures shown on the case, it is clear Costco revenue is smaller than Walmart’s, yet Costco is showing significance growth in this industry from 1990-2000 with CAGR 22.8%. In term of profit Costco generates 602 Million USD in 2001.

2. Why did Torres Evaluate using ratio analysis and cash flow?

Because these two has different purpose and aims. Ratio analysis is focusing on key financial performance of a company year by year and COMPARE with other competitors. Cash flow analysis focuses on internal cash-ability which looking at how a company spend its money and where the money comes from

Ratio analysis will tells how well Costco performed over the year. Cash flow will tells how liquid Costco is.

3. What did you learn from the case?

Common Financial Statement

a. Costco has grown their profit from 1997 to 2001. Costco profit was USD 312M in 1997 to USD 602 M in 2001.

b. Costco shows good trend in operating efficiency from 1997 to 2001. It was 99.11% in 1997 and now 99.03% in 2001

c. However there is slight downturn in 2001 compare to 2000. Although the revenue has increased from $31,621 to $34,137 but the profit has lower from 631M to 602M. The SG&A was increased from $2,756 to $3,129. It perhaps from the Case indicates that Costco has opening more and more store in 2001 that impact SG&A overall.

Sustainable Growth

a. The ROE average was 17% from 1997 to 2000. However it was decreased on 2001 to 14.2%.

Net Income | 602 | 631 | 515 | 460 |...