Costco Wholesale: Case Study
Select clubs also offer services such as car and home insurance, mortgage and real estate services, and ravel packages. In 2004 alone, Cost opened over twenty new warehouses.
Cone should evaluate a firms overall financial health over a given period of time. Furthermore, the same Information can be utilized to compare similar firms across the same industry.
Economic Value Added – which represents a measure of company’s fallopian performance and it is calculated by deducting cost of capital The formula for calculating EVA is as follows: Net Operating Profit After Taxes (NONFAT) – (Capital * Cost of Capital) Comparing Cost to its top competitor Cam’s Club-division of Wall-Mart, Cost has maintained steady growth as well as healthy finances. Free Cash Flow Free Cash Flow is important because it allows a company to pursue opportunities that enhance shareholders value. Without cash It Is very difficult to develop new products, make calculations, pay dividends and reduce debt.
Another interesting fact to notice is the high increase in property, plants, and equipment increase in proportion to assets, from 31% in 1997 to 58% in 2001. Cost has a much higher ratio of accounts payable in 2001 compared to 1997, which can be explained by the many investments and purchases of property, land, and plans. The amount of short-term liabilities to assets has more than doubled, from 20% to 41%. This may be a troublesome trend if it continues since they need to keep more cash reserves in order not to get into a cash flow problem.
The main source of growth has been issuance of stock, which increased the stockholder’s equity ratio to assets from 24% to 48%.
Overall, Cost has managed its finances quite well and does not seem to be financial difficulties Judged by the income statement and balance sheet. They have maintained their efficiency and operating margin in relations to growth and will most likely maintain sustainable growth. References: 1 . Http://www. Motorola. Com/us 2. Http://wisped. Com 3. Mornings Advisor QuickTime Report