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Costco

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HBS Case Study 2: Costco Wholesale Corporation Financial Statement Analysis (A) Lee Hathaway MMS 185: Managerial Finance Professor Veraldi September 27, 2007 It is important for stockholders to continuously re-evaluate their investments. Although some investors do this more frequently and thoroughly than others, the majority of shareholders do so at least once each year. Therefore, Torres’ desire to update her analysis in order to determine whether Costco was still operating efficiently makes perfect sense. After thorough examination, my analysis proves that Costco remains one of the industry’s leading competitors and there seems to be no reason for Torres to sell her shares as long as she wishes to retain holdings of a …show more content…

As a percentage of net sales, Costco’s operating income rose from 2.70% in 1997 to 2.91% in 2001. This is a positive factor, meaning that the firm became more efficient. Another interesting trend which demonstrates growth is the rise in interest income and other expenses from 0.07% of sales in 1997 to 0.13% in 2001 on the income sheet. Typically, this value fluctuates each year with the amount of cash a company keeps on hand. Costco’s increase suggests that the company either increased its amount of short-term deposit investments’ held, switched its funds to money market funds, savings accounts, or CDs with higher yielding interest rates, or their existing funds experienced a growth in interest rates. Moving onto the income statement portion of the common-size financial statements, an increase in cash and equivalents (3.20% of total assets in 1997 to 5.97% in 2001) and receivables (2.69% of total assets in 1997 to 3.22% in 2001) coupled with a decrease in inventory signify Costco’s improving efficiency over this five year period. It is important to mention two points. First, the decrease in inventory as a percentage of total assets from 30.8% in 1997 to 27.14% in 2001 signifies an increase in the turnover rate, perhaps due to

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