Costco Wholesale Corp

Liquidity Ratios

Costcos liquidity has remained a little constrained on account of the nature of its business.

Costco is a leading retail player of USA and most of the retail players have low current ratio.

Costcos current ratio has declined over the last three years thus denoting some liquidity

concerns.

Liquidity 2014-08 2015-08 2016-08

Current Ratio 1.22 1.05 0.98
Quick Ratio 0.59 0.46 0.38

Similarly, the quick ratio which is a more stringent liquidity measure as it removes inventory

(which is not readily convertible to cash) has also been declining over last three years.

Profitability Ratios

The gross profit margin of the company has remained stable during the last three years. Being a

retailer, the company operates on high volume and comparative lower margins. The gross profit

margin of the company is lower than its peers and industry average.

2014-08 2015-08 2016-08

Gross Margin % 12.59 13.02 13.32
Net Margin % 1.83 2.05 1.98

The net profit margin has also demonstrated a stable track record during last three years. The

net profit margin in most of the retail companies is low and similarly Costcos net profit

margin has remained close to 2% over the last 3 years.

Retail industry is dominated by few large companies such as Wal-Mart and Amazon. As it has

been facing competitive pressure, the company has not been able to improve its profitability

margin.
Solvency

Costcos solvency position can be considered comfortable given its low Debt/Equity ratio

over the last three years. This implies that there has been successful management of debt

levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.38 is

very weak and demonstrates a lack of ability to pay short-term obligations.

Solvency 2014-08 2015-08 2016-08

Debt/Equity 0.41 0.46 0.34

Market Prospects

Costco operates in a highly competitive market wherein in large players such as Wal-Mart,

Amazon and Target are the price makers. Though Costco is a big chain of retail shop, it has to

compete with other retailers on price front.

I believe the market prospects are positive given the increasing demand scenario. Rising

income levels and changing demographics has created better opportunity for Costco. The

company needs to create a niche strategy for itself which would help it to improve its

profitability margins in future.