Costco Wholesale Corporation Financial Statement Analysis Report
Maryam Tayeri
University of Maryland University College
Introduction
The purpose of this project is to provide financial insights of Costco Wholesale Corporation based on its SEC 10-K report, by analyzing Company’s Financial Statement for the fiscal year of 2014. The main focus of this analysis is to obtain various ratios by evaluating the three broad categories of the Statement of Cash Flow which provides information about Company’s operating activities, investing activities, and financing activities. Costco Corporation provides goods to its customers with reasonable prices. Costco’s largest competition is Sam’s Club which is owned by Wal-Mart Corporation. In this report, Costco and Wal-Mart’s Statements of Cash Flow will be reviewed and compared to each other.
Operating Cash Flow
One of the most important aspects for healthy business is to monitor the rate of collection by calculating receivables turnover ratio, this will let the businesses to monitor credit policies and also allow them to know how many times account receivables are converted to cash during the year. Receivables turnover ratios also known as liquidity ratio and calculated by dividing the net credit sales in to the average net account receivables. For the purpose of this study Costco corporation’s Receivables turnover ratio is 93.84, on the other hand Wal-Mart Receivables turnover ratio is 19.65. By looking at the ratios for both corporations, we can conclude that Wal-Mart corporation is more liquid, it takes between the average of 19 to 20 days to convert their account receivables into cash; however, it take average of 93 to 94 days for Costco corporation to convert their account receivables into cash. Moreover, the net cash provided by operating activities for Wal-Mart Corporation $11,900 million is greater than Costco corporation’s $3,984 million which means Walmart can provide more cash by its own activities without borrowing any cash from outside sources.
Investing Cash Flow
This part of Statement of Cash Flow gives the information about any loss or gain from investments, stocks, bonds, etc… Investors mostly make their business decision by analyzing the Statement of Cash Flow and looking at these three categories which is included, but not limited to Cash Flow from investing activities. Total cash used in investing activities by Costco Corporation was ($2,093 million) and the main investing activities for the company was on purchases of short-term investments for ($2,503 million); however, total cash used for investing activities by Wal-Mart corporation was ($4,340 million) and the company main investing activities was on payments for property and equipment for ($4,130 million).
Financing Cash Flow
The last part of the Statement of Cash Flow reviews the firm’s financing activities. This section includes dividend distributions, repayment of the amount borrowed and etc…For fiscal year of 2014 Costco declared dividend of ($584 million) and the total cash used for the financing activities was ($786 million); On the other hand, For the same fiscal year Wal-Mart made a payment of ($3,094 million) to dividend account and the company’s total cash used for financing activities was ($8,755 million).
Summery
By comparing the 2014 Statement of Cash Flow of Costco Corporation and Wal-Mart Corporation it is evident that Costco’s Net Cash increased by $9,054 million compare to the prior year before. In contrast, Wal-Mart’s Net Cash decreased by ($1097) compared with the before. However, net cash result is not an only aspect that investors use to invest in a corporation. In my opinion Wal-Mart is a better company because their net cash provided by operating activities was higher than Costco Corporation, which means the company appears to be able to easily service its obligations.
References
The Home Depot. (2015). Form 10-K. Retrieved from UNITED STATES SECURITY EXCHANGE COMISSION: http://www.sec.gov/Archives/edgar/data/354950/000035495015000008/hd-212015x10xk.htm#sEC74FC84A634E9E548814F74E5B841A0