Research paper

COSTCO

Campbellsville University

BA 620 Managerial Finance Group Project

Group Company Project - Part II

Professor: Dr. Sunny Onyiri

Group Members

Stephen Munnangi

Prathapa Reddy Anantha

Aarthi Gaddam

Introduction

Financial ration is been created with use of the numerical values that will be taken from the financial statements in gaining the meaningful information in regards to the company. Numbers that are been found on company financial statement, income statement, cash flow statements and balance sheet will be used in performing the quantitative analysis and to assess the company liquidity, margins, leverage, rates of return , growth and valuation. So here analysis would be so focused on and the performances of Costco in the years 2019 and 2020 trends been described by ratios been calculated from the financial statements would help us to determining present financial situations (Avner , K., Oǧuzhan , K., & Shagun , P. 2014)

The Ratios Trend

Trend ration will be analysis of the financial ration comparing to same actions in the previous years by which we could analyses if the company financial statement will become less or more healthy over the time . Detail information below will represents performance of company from the financial statements. They would be indicating effectiveness of the company and ability in generating the profits from the committed

Debt-to-equity ratio, gross profit margin and free cash flow

Debt to equity ratio is that which will measure level of debt relative to book values of the tangible common equity. Present and past debt to the equity ratio value for the company over past few years, this will be calculated, dividing long term debts by the stockholder equity. Costco’s debt to equity ratio in Sep 2020 is 0.42

Gross profit is said to be profit that company will make after deducting costs been associated with the making and selling the products or costs been associated providing the services. This would appear on company income statement and could be calculated subtracting cost of the goods been sold from the revenue .Company’s gross profit in Sep 2020 is around $5.750B, a 19.62% increase year-over-year. year over year and then Free cash flow is cash the company will generate after being accounting to the cash outflow in supporting the operations and to maintain the capital asset. Gross profit margin will be subtracting operating cash flow with the capital expenditure

Interest Earned, Accounts Receivable Turnover and Inventory Turnover

Data been returned as the standard number which will suggest format is many metrics been computed and will not usually reported by firms in the filing. This is simply the amount of the interest been earned very particular period of the time form the investment that will pay holder the regular series mandate payment. Accounts receivable turnover ratio will be referred as debtor turnover ratio is the efficiency ration that w ill measure the way it will efficiently the company will be collecting the revenue and extensions the way it will be using the assets. Accountable turnover ration could be defined as the ratio by showing the number of time the company inventory is been sold and is replaced over the period. In Sep 2020 accounts inventory ratio is around 11.64. Inventory turnover ratio is that will make that to be easy in figuring out the way long it will take for the business in selling through whole inventory (Barkat , U., Zuobao , W., & Feixue , X. 2014)

Return on Sales, Asset Turnover, Return on Assets,

Return on sales is the ration been used in evaluating the company operations efficient, this will provide the insights into how much profits will be produced per the dollar of the sales. Increase in this will indicate that company will be growing efficiently and decrease is that impending financial trouble. Assets turnover ratio is percentage of company revenue to value of the average totals long and short terms assets, and this is around 3.2 in Sep 2020. Return on Assets is the profitability that will provide how profits the company will be able in generating from the assets. Present and current return on assets values for Costco over last few years. This could be defined as indicator in the way profitable the company is been relative to the total assets (Daniel , K., & Amos , T. 2013)

Financial leverage and return on equity.

Financial leverage refer to utilization of the borrow funds in acquiring the new assets that will be assuming in generating the high capital gains or the income been compared to cost in borrowing. Costco financial leverage is degree that firm will utilize the fixed incomes security and use the equity to the finance project. Company with the higher leverages will be considered to be at the financial risk. Return on equity is the measure of the financial performance been calculated dividing the net income by the shareholder equity. As shareholder equity is that be equal to company assets subtract the debts return of equity been considered return on the new assets (Julia , W. 2014)

Conclusion

Costco is been engaged in research and development, manufacture and the sales of the range of the products in health care. Based on the rations that are as above efficiently of company will be questionable data indicate clearly that it is performed properly or not and indicate by the reliance on the debts to pay for the operating activity is been revealed by ration. Debt ratio is week. Gross profit ration is strong, Time interest ratio is strong in last year than this year, accounts receivable turnover is strong inventory turnover is said to be week

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