Costco Ratio 1u251

Costco Wholesale Corp Liquidity Ratios Costco’s liquidity has remained a little constrained on of the nature of its business. Costco is a leading retail player of USA and most of the retail players have low current ratio. Costco’s current ratio has declined over the last three years thus denoting some liquidity concerns. Liquidity Current Ratio Quick Ratio

2014-08 2015-08 2016-08 1.22 1.05 0.98 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.

Gross Margin % Net Margin %

2014-08 12.59 1.83

2015-08 13.02 2.05

2016-08 13.32 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 Costco’s 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 Costco’s 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 Debt/Equity

2014-08 2015-08 2016-08 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.