Using Ratio Analysis to Evaluate Costco's Current Strategy

Read the overview below and complete the activities that follow.

Evaluating how well a companys strategy is currently working involves assessing the strategy from a qualitative and also a quantitative standpoint. The stronger a companys current overall performance, the less likely the need for radical strategic changes. The weaker a companys performance, the more its current strategy must be questioned.

Table 4.1, provides a compilation of the financial ratios most commonly used to evaluate a companys financial performance and balance sheet strength. Assurance of Learning Exercise 1 provides you with an opportunity to assess Costcos financial performance and balance sheet strength between 2013 and 2014. This exercise requires the same calculations and overall assessment.

Ratio Calculations:

Using the formulas in Table 4.1 and Costcos financial statement starting on page 115, calculate the following measures of financial performance. Be sure to report items (a) through (e) in percentages (i.e. multiply your result x 100)

a. Gross profit margin.

b. Operating profit margin.

c. Net profit margin.

d. Return on stockholders equity.

e. Return on assets.

f. Times-interest-earned (or coverage) ratio.

g. Debt-to-equity ratio.

h. Days of inventory.

i. Inventory turnover ratio.

j. Average collection period.

Case Analysis: Using Ratio Analy M MHE Reader D table,41.jpg (718x2092) Using Ratio Analysis To Evaluate C @ https://player mh education com u epub/sn_3c3f#epubcf1%2F6%2F1121%2F4%2F4%5Bdata-uuid-b9d9764f95c48e3a58b1d44122b5788%50%2F2%5Bdata-uuid-4a3d49e a NCSA-Get Recruite Office of the Bursar Ohio University eCa Login to Ohio Unive CBS Sports-News, L Procore Log In-Sales Cloud CRM: P // MSM LLC providing : Apps ( Based on these ratios, did Costco's financial performance improve, weaken, or remain about the same from 2013 to 2014? Consolidated Income Statements for Costco Wholesale Corporation, 2013- 2014 (in millions, except per share data) Page 1 2014 2013 Net sales Membership fees Total revenue Merchandise costs Selling. general, and administrative Operating income Other income (expense) $110.212 2.428 112.640 98.438 $102.870 2,286 105,136 S 91,948 10.155 3,053 3.220 Interest expense (113) (99) Interest income and other, net Income before income taxes Provision for income taxes Net income including noncoutrolling interests Net income attributable to noacontrolling interests Net income 97 3,051 990 2,061 3,197 109 2.088 (30) S 2,058 $ 4.69 S 4.65 S 2,039 S 4.68 S 4.63 Basic earnings per sl Diluted earnings per share Source: Cosdco Wholeale Coporation 2014 1o-K Consolidated Balance Sheets for Costco Wholesale Corporation, 2013-2014 Page 16 (in millions, except per share data) August 31, 2014 September 1, 0 Type here to search 9:02 AM 9/30/2018 22 Case Analysis: Using Ratio Analy M MHE Reader D table,41.jpg (718x2092) Using Ratio Analysis To Evaluate C @ https://player mh education com u epub/sn_3c3f#epubcf1%2F6%2F1121%2F4%2F4%5Bdata-uuid-b9d9764f95c48e3a58b1d44122b5788%50%2F2%5Bdata-uuid-4a3d49e a NCSA-Get Recruite Office of the Bursar Ohio University eCa Login to Ohio Unive CBS Sports-News, L Procore Log In-Sales Cloud CRM: P // MSM LLC providing : Apps ( Based on these ratios, did Costco's financial performance improve, weaken, or remain about the same from 2013 to 2014? Consolidated Income Statements for Costco Wholesale Corporation, 2013- 2014 (in millions, except per share data) Page 1 2014 2013 Net sales Membership fees Total revenue Merchandise costs Selling. general, and administrative Operating income Other income (expense) $110.212 2.428 112.640 98.438 $102.870 2,286 105,136 S 91,948 10.155 3,053 3.220 Interest expense (113) (99) Interest income and other, net Income before income taxes Provision for income taxes Net income including noncoutrolling interests Net income attributable to noacontrolling interests Net income 97 3,051 990 2,061 3,197 109 2.088 (30) S 2,058 $ 4.69 S 4.65 S 2,039 S 4.68 S 4.63 Basic earnings per sl Diluted earnings per share Source: Cosdco Wholeale Coporation 2014 1o-K Consolidated Balance Sheets for Costco Wholesale Corporation, 2013-2014 Page 16 (in millions, except per share data) August 31, 2014 September 1, 0 Type here to search 9:02 AM 9/30/2018 22