Costco’s ratios can be widely categorized into liquidity, asset management, leverage, profitability, and valuation ratios.
Liquidity Ratios
Current Ratio
This ratio measures the ability of Costco to repay short-term debts using its current assets. The higher the ratio, the higher the capacity. The company current ratio has on uptrend of 97.7%, 99%, and 101.8% for the year 2016, 2017, and 2018 respectively. Though, it is performing below the industry.
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Acid-test Ratio
The ratio tests the ability of the business to settle short-term debts by converting short-term assets into cash without including inventories. Costco’s ratio has increased from 2016 through 2018 by 4% ‘beating’ the industry performance.
Asset Management Turnover
Inventory turnover
The ratio demonstrates the reasonableness of the inventory level in relation to the cost of goods sold. Costco’s inventory turnover for 2016, 2017, and 2018 is constant at 11 which is above the industry with 4. This may indicate the possibility of inventory shortage.
Account Receivable Turnover
It shows the effectiveness of the company in extending credit sales. Costco's turnover has decreased from 96 in 2016 and 2017 to 91 in 2018 compared to 362 in the industry. This shows inadequate debt collection function.
Day’s Sales in Receivables
The ratio shows the long duration of waiting for the collection of credit sales. Costco's ratio has been between 3.89 and 4.09 in 2016 and 2018 while the industry is at 4 days. It means the debtors are paying their dues in time.
Leverage Ratios
Debt Ratio
The ratio shows the extent to which assets are financed by debts. Costco’s ratio increased from 0.63 to 0.7 and decrease to 0.68 in 2016 through 2018. The industry is at 0.34 which means Costco is highly financed by debts.
Times-interest-earned ratio (TIER)
Indicates the proportion of income that can cover interest expense. Costco had 27.61, 30.68, and 28.18 for the year 2016 through 2018. It is consistent with industry which has 28.8.
Profitability Ratio
Return on Sales (Operating Profit Margin)
The ratio shows the efficiently of making a profit from the revenue. That is, the income convertible to profit (Boyas and Teeter, 2017) . The lower the income the lower the profit generation potential. In 2016 through 2018, Costco’s had an uptrend of OPM from 0.21 to 2.12 to 2.26 outperforming the industry which has 1.32.
Return on Assets
It measures the income generated from total assets employed. Costco ROA was 7.09, 7.37, and 7.68 for the year 2016 through 2018. It shows the underutilization of assets as the industry's ROA is 10.41.
Valuation Ratios
Return on Common Stockholders’ Equity
Costco’s ratio trend has been inconsistency from 19.46 to 24.86 to 24.49 and also below the industry with 26.00.
Earnings per Share (EPS)
This is the return on shares which have an uptrend from 5.33 to 7.09 which is above the industry with 5.76.
Price/Earnings Ratio
It is the average return for one dollar invested in shares which has inconsistent trend from 25.99 to 25.70 to 30.51 while the industry is at 28.
Dividends Yield
It compares dividend earned with the value of shares in the market. Although it is varying with years, it is above the industry which means Costco is more stable with DY of 1.12, 1.05, 109 from 2016 through 2018.
Book Value per Share
It is relatively higher than the industry which means the value of the company is stable and investor has to pay more dollars. From the year 2016 through 2018 Costco had a ratio of 27.61 to 24.65 to 39.21 and industry had 24.24.
References
Boyas, E., & Teeter, R. (2017). Teaching Financial Ratio Analysis using XBRL. In Developments in Business Simulation and Experiential Learning: Proceedings of the Annual ABSEL conference (Vol. 44, No. 1).
