Costco : A Competitive Competitor

1775 Words Apr 22nd, 2015 8 Pages
Despite Target’s problematic year in 2013 that consisted of a failed expansion into Canada and data breach, we regard the company to be a strong competitor in the industry as shown in the years prior to 2013. One of Target’s biggest competitors in the industry is Costco. Although both firms have similar capital structures, Costco is a more solvent company, as it has a higher current ratio, quick ratio, interest coverage ratio, receivables turnover ratio, and is therefore more comfortable in liquidizing its assets to meet obligations. Costco may be a good investment for a creditor who would like to loan money to company with a greater safety margin. Not only is Costco a more solvent company but it’s more profitable as well, outperforming Target in terms of its ROE, ROA, and EPS ratios. We regard Costco as a company with strong growth potential and therefore we advise stockholders to accumulate shares in Costco even though the market price of Costco’s stock is higher than Target’s. For a stockholder who currently possesses shares of Target, we suggest selling the shares to purchase stocks of Costco.

Target’s cash flows from operating activities are $6.52 billion whereas net earnings for 2013 are $1.97 billion; the difference between these two numbers can be attributed to reversing the effects of depreciation and amortization ($2.2 billion), share-based compensation expense ($110 million), deferred income taxes ($254 million), bad debt expense ($41 million), gain on…

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