The table below shows the amount of Costco current and total liabilities for the past two years:
| Costco Current Liabilities and Total Liabilities | ||
| September 2,2018 | September 3,2017 | |
| Current Liabilities | $19,926,000,000 | $17,495,000,000 |
| Total Liabilities | $40,830,000,000 | $36,347,000,000 |
Percentage of Current Liabilities to the Respective year’s Total Liabilities
The percentage of Current Liabilities to Total Liabilities = × 100%
For 2018, Percentage of Current Liabilities = × 100%
= × 100%
= 48.80%
For 2017, Percentage of Current Liabilities = × 100%
= × 100%
= 48.13%
Analysis of Results
The percentages calculated above represent the portion of the Company’s borrowings are short term. Costco’s percentage of current liabilities increased in 2018 which implies that during the 2018 fiscal year, the company increased borrowing short-term debts ( Costco Wholesale Corporation, 2018) . The value of the Company’s short-term borrowing is almost equal to long-term debts and equity. This implies that Costco’s borrows more short-term debts as compared to long-term debts.
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Long-term Debts
The Company long-term debts are mainly Senior Notes. The table below shows the Company’s long-term debts for the past two years.
| Costco Long-term Debts and Total Liabilities | ||
| September 2,2018 | September 3,2017 | |
| Long-term Debts | $6,487,000,000 | $6,573,000,000 |
| Total Liabilities | $40,830,000,000 | $36,347,000,000 |
The percentage of Long-Term Debts over Total Liabilities = × 100%
In 2018, Long-term Debts Percentage = × 100%
= × 100%
= 15.89%
In 2018, Long-term Debts Percentage = × 100%
= × 100%
= 18.08%
Analysis of Results
The percentage of Long-term debts over total liabilities was higher in 2017 than in 2018. This means the company decreased funding using long-term debts in 2018 ( Costco Wholesale Corporation, 2018) .
Ratio Analysis
Accounts Payable Turnover Ratio
Account payable turnover ratio is a measure of short-term liquidity which measures the rate at which a company pays off its suppliers.
Calculations:
Accounts Payable Turnover =
The table below shows Costco’s total supplier purchases and average accounts payable for the past three years.
| Purchases and Average Accounts Payable | |||
| 2018 | 2017 | 2016 | |
| Accounts Payable | $1,561,000,000 | $2,258,000,000 | $1,532,000,000 |
| Purchases | $123,152,000,000 | $111,882,000,000 | $102,901,000,000 |
Accounts Payable Turnover for 2018 = = 78.89
Accounts Payable Turnover for 2017 = = 49.55
Accounts Payable Turnover for 2016 = = 67.15
Analysis of Results
The results show that the company paid off its suppliers at a faster in 2018 than the rest of the periods; it paid its suppliers 78.89 times, while the lowest frequency of the payments was in 2017 ( Costco Wholesale Corporation, 2018) .
Average Age of Payables
This ratio measures the average days the company takes to pay its suppliers.
Average Age of Payables =
This formula can also be written as:
Average Age of Payables =
For 2018, the average age of payables =
= 5days
For 2017, the average age of payables =
= 8 days
For 2016, the average age of payables =
= 6 days
Analysis of Results
The average payable days for the three years is low which indicates the company is not taking full advantage of the purchase credit.
Ratio Analysis
Debt to Equity Ratio
Debt to equity ratio, also known as gearing ratio is used to measure the company’s financial leverage. It measures the company’s debts in relative to its net assets.
Calculations:
Debt/ Equity Ratio =
| Costco Equities and Total Liabilities | |||
| 2018 | 2017 | 2016 | |
| Total Shareholders’ Equity | $13,103,000,000 | $11,079,000,000 | $12,332,000,000 |
| Total Liabilities | $40,830,000,000 | $36,347,000,000 | $33,163,000,000 |
For 2016, Debt/Equity Ratio =2.69
For 2017, Debt/Equity Ratio = 3.28
For 2018, Debt/Equity Ratio =3.12
Analysis of Results
The company had the highest debt to equity ratio in 2017 meaning during this period, the company was more aggressive in financing its growth with debt than other periods. The company had the lowest debt/equity ratio in 2016 meaning this period the company was at low risk ( Costco Wholesale Corporation, 2018) .
Reference
Costco Wholesale Corporation. (2018). 2018 Form 10-K . Retrieved from https://www.sec.gov/Archives/edgar/data/909832/000090983218000013/cost10k9218.htm#sD9AD6A429D4852E382CE3F87E47D80F3
