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Essay about Costco Wholesale Corporation Case Study

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INTRODUCTION The Industrial Revolution reshaped the world and expedited how business was conducted through the use of railroads and steam engines. Department stores soon evolved after and revolutionized how shopping was done and centralized a variety of merchandise at one central location (Tayan, 2003). With the introduction of 20th century operational management strategies such as Just in Time (JIT) and Lean Manufacturing, companies had to alter its operational efficiency and the way it conducted its business in order to grow and stay competitive. Costco Wholesale Corporation entered the wholesale club industry in the early 1980s (Tayan, 2003). The idea behind a wholesale club was to maximize profits by minimizing operational costs…show more content…
Costco has maintained steady growth as well as healthy finances. The company has maintained its operating expenses at high although steady level ranging from 98%-99%. Operating income has been managed kept its relation to growth. Net income has also been sustained at a level constant to growth. A key factor to Costco’s finances is its membership fees. It accounts for a very small amount in comparison to its net sales, but it is the difference maker between breaking even, (or taking a loss), to making a healthy profit. Costco’s membership fees account for a little less than 2% and is almost equal to its net income. Based on the company’s income statements, Costco is perceived to be in good financial condition, as income to sales ratio remains the same.
Information gathered from Costco’s balance sheet show that it has steadily grew a larger cash reserve. It has a higher rate of outstanding receivables and has sharply increased the rate of inventory kept in stock from 16% in 1997 to 27% in 2001. 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. Costco 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
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