The financial statements for the financial year 2017 indicate that the company reported revenues of $129,025.00 in the financial year. Earnings before interest and tax were $4,111,000. Earnings before interest tax and depreciation and amortization were $5,481,000. The net income excluding and including extraordinary items for the year was $2,679,000. The diluted earnings per share excluding and including extraordinary items were 6.08. The dividend yield for 2017 was 1.04% and the dividend rate was 2.28. The annual dividend growth rate for the company in the last five years was 12.43% and the revenue growth rate in the past five years was 5.41%. The company’s market capitalization for its total common classes was 95,905.65 million. The share outstanding for all classes of shares was 438.54 million. The average share outstanding is 435.79 million.
Ratio Analysis
The financial statements for Costco Wholesale Corporation for the year 2016 and 2017 were used to compute the four types of ration for analysis purposes. The ratios were then compared with industry leaders to determine how best the company competes with its closest rivals. The following g ratios give a glimpse of the financial performance of the company over the two years. The company had an inventory turnover ratio of 11.47 and 11.38 for 2016 and 2017 respectively indicating that the ratio has declined in the last year compared to the previous year. Similarly, a comparison of Costco with its closest rival shows that it has a higher inventory turnover compared to the other market leaders in the industry. Companies like Amazon, Walmart and Target had an inventory turnover of approximately 7, 8 and 6 respectively.
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The receivables turnover for the company in the two years was 92.71 and 88.11 indicating that there was a slight decline. Costco, however, had a higher receivable turnover compared to the likes of Amazon and Walmart whose values were approximately 19 and 83. The payables turnover for the two years was 13.52 and 11.64 which shows that there was a slight decline in 2017. The company, however, has a high payable turnover compared to Walmart which has an average of 9 and target with an average of 7. The average inventory processing period for the company is 32 days which is lower than Walmart which processes its inventory in 50 days or target which takes 62 days. The average receivables collection period for the company is four days which are less than the days taken by its competitors like Amazon and the same with Walmart.
The operating cycle for the in the two years was 36 which is lower than its closest rivals. Whereas its average payables payment period was 27 and 31 for 2016 and 2017 respectively this is slightly lower than Walmart’s 39 and 42 respectively. The company pays for its payables earlier than its closest rivals. The cash conversion cycle was 9 and 5 for 2016 and 2017 respectively which is almost the same as Walmart 10 and 5.
The current ratio for 2016 and 2017 was 0.98 and 0.99 respectively while the quick ratio was 0.38 and 0.41. The cash ratio was 0.30 and 0.33 for the 2016 and 2017 respectively. The current ratio for the industry leader was 0.93 and 0.86 whereas the quick ratio was 0.22 and 0.19 for 2016 and 2017. The cash ratio for Walmart was 0.13 and 0.10 for 2016 and 2017 respectively. The liquidity ratios calculated shows that Costco Wholesale Corporation has higher liquidity ratios compared to the industry leaders.
The return on assets for the company in 2017 was 7.78% and the return on equity for the same year was 26.12%. The profit margin was 2.10% and the operating margin was 3.22%. The gross margin was 13.11% Costco Wholesale Corporation debt to equity was 52.83% and 53.46% for the two years. Annual growth recorded by the company was 5.34% where the annual revenue growth was 5.41% the dividend grew by 12.43 in the past five years and the earning per share growth rate in the period was 9.32. The profitability ratios show that the company needs to improve its operations to realize higher profitability ratios.
Stock Performance
Costco Wholesale Corporation trades its common stock at NASDAQ Global Select Market. According to the financial statements for the year 2017 the company operates items from different categories including Foods which account for approximately 22% followed by Sundries 21% then by Hardlines 16%, fresh foods approximately 14%, soft lines 11% ancillary and others at 16%. The stock values according to yahoo finance for the last two years have continued to report an upward trend. The stock has continued to report impressive performance since 2016 when it traded at a high of 156.43 and a low of 148.28. The volume traded was 11.79 million. Two years later, the stock was trading at a high of 192.30 and a low of 186.72 moving a volume of 12.22 million. The stock traded at a high of 220.68 and a low of 217.59 moving a volume of 2.58 million.
The above analysis indicates that the stock is performing well and provides a good investment option for potential investors. The ratio analysis, for example, shows that the company is performing between than its rivals. It is also evident that despite reporting lower profitability ratios, the company has continued to pay dividends to its stockholders which encourage them to hold the stock, therefore, enhancing its value. The company stock continues to report impressive performance which promises the investors a higher return in the future of the current growth rate is anything to go by. The company has a high debt to equity ratio which can pose significant risks during times of financial distress. However, the ratio is still manageable and helps the company to retain control over its operations. The high debts also boost the company net income since the interest paid on debt is tax exempt.
