Costco, the wholesale corporation, is the company of my research. While preparing to review the statement of
Question:
Costco, the wholesale corporation, is the company of my research. While preparing to review the statement of cash flows, I thought it was going to be the usual, "profit, profit, profit" that I have been noting most of the time with them. The results showed a difference, and it surprised me!
The first step in the statement of cash flow is to determine the starting cash balance. After the starting cash is determined, the next step is to figure out the operating activities. This number reveals how much cash a company generated from its operations (HBR, 2021). The operating activities are compiled in one of two ways, the direct or indirect method. The direct method looks at the amount of cash that came in and subtracts the cash that left the company. Very basic math, but still all traceable with proven transactions, thus it is time consuming due to tracking every dollar that moved. The indirect method is more common, and faster for companies. It looks at the net income and does a more basic subtraction of the cash flow. Adjustments are allowed to account for depreciation here. For Costco, from 2020-2021, their ending net cash was $8,958(in millions) but DECREASED in 2021-2022 to $7,392! This is where my surprise came in. I did not think I would see a decrease. It then increased exponentially from 2022-2023 to $11,068. According to the annual report, the increase was attributed to net sales and membership fees. They also mentioned that some could be attributed to their inventory levels and how fast items moved off the shelves, how they paid their suppliers and delivery times. Costco states their operating cash flow values consists of payments to merchandise suppliers, warehouse operating costs, including payroll and employee benefits, utilities, and credit and debit card processing fees (Jelinek, 2023). Overall, and thus far, they are in a positive with the large increase accounting for the lesser amount the year before. By keeping less merchandise on the floor, it can move faster, and if it doesn't sell, they are not left with a large amount of inventory.
The investing activities are accounted for by the buying and selling of long-term assets. HBR suggest the assets here to include property, facilities, and equipment. Costco was on the positive side in all years verified. 2020-2021 showed $3,535 and increased in 2021-2022 to $3,915. Again, it increased in 2022-2023 to $4,972. This is evidenced by Costco continuing to purchase more land to build stores. In the financial year 2022-2023, 26 new warehouses were opened, in the U.S. and internationally. The CEO mentioned that land is getting more expensive and difficult to contract, so they are hopeful for the future of the continuation to expand.
The finance activities in the statement of cash flow entails all cash that is moved through the company including debt and equity. This is associated with raising cash and paying back debts to investors and creditors (HBR, 2021). Costco went in 2020-2021 from $6,488, to $4,283 in 2021-2022, and then in 2022-2023 $2,614. With the numbers decreasing, I am uncertain if it's a positive or negative. While the numbers reflect going down, that would testify to a negative flow. However, since this is the money that is used for financing and payments, since it is going down, perhaps this means the company is paying out less than in previous years, therefore, it could be a positive attribute? I would love clarification in this aspect, as I had difficulty finding this out.
what did you take away from what I wrote above regarding costco's statement of cashflow? do think that the cash flow is positive or negative based on what you read above?
Essentials Of Federal Taxation 2019
ISBN: 9781260190045
10th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver