Costco, Walmart, and Amazon Inc. are represented in this analysis, which is executed to determine which of the companies is better when considering an investment portfolio. Notably, Amazon is doing impressively well as per the recorded liquidity position. A healthy current ratio depicted is primarily influenced by the vast number of assets, which essentially renders the company capable of handling potential financial shocks. The strong current asset value is also an indication of a stable going concern position of the firm.
Walmart, though doing impressively in profitability, is presented with a probable liquidity challenge. Walmart faced a decline in the value of the current ratio, which illustrates an increment of liabilities. Failure to promptly address the pertinent challenge will likely induce a possibility of the company struggling to cover some of the current liabilities in future. Such would later negatively impact the efficiency rate, and accordingly, expected future margins. The ultimate implication is reducing a stock price that translates to a loss in investments and an established disincentive to purchase more stocks.
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On the other hand, Costco is doing reasonably well, though there is an apparent decline in the value of the fixed assets. The fixed assets are vital to cover up for the firms' primary financial needs, while also acting as securities for credit. Therefore, a reduction of the component paints a gloomy picture of the respective company's financial health.
Financial Ratios
The current ratio is applied to determine the liquidity position of the three companies. Here, it is outward that Amazon recorded the highest value and the greatest improvement of more than 11 points. On the other hand, a worsening situation is exemplified in the case of Walmart, that saw a reduction of the current ratio with a margin of 0.000167. Costco experienced a positive trend in the liquidity position following a rise in the current ratio by 0.1211902 units. However, a downside trend was exemplified by Amazon on the gross profit, which essentially raises questions about future profitability.
On the other hand, Costco and Walmart faced an upward trend, which exemplifies the possibility of managing the firm's pertinent liquidity challenge. The next element is about debt-equity ratio, where an improvement is observed for the three companies in question. Notably, such indicates that the companies consider equity financing more than the debt that could come at a considerable cost. The last aspect explored is the solvency examination, where it is confirmed that none of the three companies is confronted by the bankruptcy risk.
Choice
Consistency is exceedingly momentous when making an investment decision. On that account, Costco could be selected as the most worthwhile to include in an investment portfolio. The decision is reached upon careful consideration of the company's liquidity rate that is stable. This essentially means that the company can withhold occasional financial shocks and ascertain a stable going concern position. The next element considered is profitability. There is a direct connection between profitability and the expected returns on investments. The higher the profits, the higher the expectations for a high earning per share. That means that the investor can reap more from this investment portfolio.
Solvency issue is also an important area to consider. Costco's debt to equity ratio is positively impressive. That essentially means that the company is not faced with major financial burdens of paying off high interests for the bank loans, limiting the firm's financial capability. Therefore, the positive value recorded should prompt the decision to consider this specific option with guaranteed positive yields.
References
Document. (2020). https://www.sec.gov/Archives/edgar/data/104169/000010416919000016/wmtform10-kx1312019.htm#s6EB4B4E54DED54A7BC64CAC319ACC3EA
Document. (2020). https://www.sec.gov/Archives/edgar/data/104169/000010416920000011/wmtform10-kx1312020.htm#sFCE629F46DEA5012B13798FF82B77CC9
Document. (2020). https://www.sec.gov/Archives/edgar/data/909832/000090983219000019/cost10k9119.htm
Document. (2020). https://www.sec.gov/Archives/edgar/data/1018724/000101872420000004/amzn-20191231x10k.htm#sA7A65C37475B5CDB99955FED2F5D76EE
