Ratio analysis provides another set of patterns to evaluate before deciding to buy or sell a company’s stock. Ratios reveal more than just the past performance; ratios reveal how effectively the company converts product sales into shareholder returns. Ratios provide a gauge for comparison across time and across the industry (competitors), while removing the impact of size differences. Would you rather invest in Company A, with $1.0 million in earnings, or Company B, with $10.0 million in earnings? It’s hard to say. However, if Company A earns a ROA of 25%, while Company B earns a ROA of 2%, the decision becomes clear.
Liquidity ratios provide clues to how effectively the company manages its cash collection cycle. Asset turnover ratios reveal how efficiently the company uses its assets to generate profits. Debt management ratios reveal how leveraged a company is, which provides an indication of future risk. Taken together, a company’s ratios and its ratios compared to the industry competitors provide important insight to the investment strength of the company’s stock. In this assignment, you will review the trend in your chosen company’s financial ratios over the past 3 years and compare your chosen company’s ratios to the average ratios from top competitors in the industry.
Write:
In your paper, address the following four parts in a Word document:
Part 1:
Summarize the trends in your company’s ratio performance over the 3 most recent years. Be sure to address the following ratios included in Appendix C:
Profitability ratios: ROA, ROE, return on investment (ROI).
Liquidity ratios: quick ratio, current ratio.
Debt management ratios: long-term debt to equity, total debt to equity, interest coverage ratio.
Asset management ratios: total asset turnover, receivables turnover, inventory turnover, and accounts payable turnover.
Per share: book value per share.
Part 2:
Interpret whether the trend for each ratio (listed in Part 1) is an improvement or a decline in performance for the company.
Create a table that lists each ratio as either a strength or a weakness in the most current year, based on its trend and your interpretation.
Determine the overall financial strength of the company based on the ratios identified as either strengths or weaknesses.
Consider all of the ratios discussed so far. Is the company’s strength the fact that the debt management ratios are improving? Or is it that the liquidity ratios are increasing? Is the company’s weakness that the turnover ratios are declining? Or is the company’s weakness that debt management ratios are weakening?
Categorize the company’s overall ratio performance as either strong, neutral, or weak, based on your determination from the ratios.
Part 3:
Compare your chosen company’s ratio performance to the industry competitor ratios in the most recent year based on Appendix D. Be sure to address the following ratios included on Appendix D:
Profitability ratios: ROA, ROE, gross margin, and net margin.
Liquidity ratios: quick ratio and current ratio.
Debt management ratios: long-term debt to equity, total debt to equity, and interest coverage ratio.
Asset management ratios: asset turnover and inventory turnover.
Create a table that lists each ratio as either higher or lower than the average ratio for the competitors in the industry.
Part 4:
Categorize the company’s overall financial performance as either better than average, average, or worse than average compared to the industry based on the ratios.
Interpret which ratios are the most important and explain your reasoning.
Justify your conclusion based on the table you created, your interpretation of which ratios are the most important, and the company’s overall ratio performance compared to the industry competitors.
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Costco Wholesale Corp (NMS: COST)
Company Financials
Income Statement
Exchange rate used is that of the Year End reported
date
As Reported Annual Income Statement
Report Date
08/28/2022
08/29/2021
08/30/2020
Currency
Audit Status
USD
Not Qualified
USD
Not Qualified
USD
Not Qualified
Consolidated
Scale
Yes
Thousands
Yes
Thousands
Yes
Thousands
Net sales
$ 222,730,000
Membership fees
$
4,224,000
Total revenue
$ 226,954,000
Merchandise costs
$ 199,382,000
Selling, general & administrative expenses
$ 19,779,000
Preopening expenses
Operating income
$
7,793,000
Interest expense
$
158,000
Interest income
$
61,000
Foreign-currency transactions gains (losses), net
$
106,000
Other interest income & other income, net
$
38,000
Interest income & other income, net
$
205,000
Income before income taxes – domestic
$
5,759,000
Income before income taxes – foreign
$
2,081,000
Income before income taxes
$
7,840,000
Current federal provison (benefit) for income taxes
$
798,000
Deferred federal provison (benefit) for income taxes
$
(35,000)
Total federal provison (benefit) for income taxes
$
763,000
Current state provison (benefit) for income taxes
$
333,000
Deferred state provison (benefit) for income taxes
$
(5,000)
Total state provison (benefit) for income taxes
$
328,000
Current foreign provison (benefit) for income taxes
$
851,000
Deferred foreign provison (benefit) for income taxes
$
(17,000)
Total foreign provison (benefit) for income taxes
$
834,000
Provision for income taxes
$
1,925,000
Net income (loss) including noncontrolling interests
$
5,915,000
Net loss (income) attributable to noncontrolling interests $
(71,000)
Net income attributable to Costco Wholesale Corp
$
5,844,000
Weighted average shares outstanding – basic
443,651
Weighted average shares outstanding – diluted
444,757
Year end shares outstanding
442,664
Net income (loss) per common share – basic
$
13.17
Net income (loss) per common share – diluted
$
13.14
Cash dividends declared per common share
$
3.38
Number of full time employees
Number of part time employees
Total number of employees
304000
Number of common stockholders
10279
Foreign currency translation adjustments
-721000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
192,052,000
3,877,000
195,929,000
170,684,000
18,461,000
76,000
6,708,000
171,000
41,000
56,000
46,000
143,000
4,931,000
1,749,000
6,680,000
718,000
84,000
802,000
265,000
11,000
276,000
557,000
(34,000)
523,000
1,601,000
5,079,000
(72,000)
5,007,000
443,089
444,346
441,825
11.30
11.27
12.98
288000
9958
181000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
163,220,000
3,541,000
166,761,000
144,939,000
16,332,000
55,000
5,435,000
160,000
89,000
7,000
(4,000)
92,000
4,204,000
1,163,000
5,367,000
616,000
77,000
693,000
230,000
8,000
238,000
372,000
5,000
377,000
1,308,000
4,059,000
(57,000)
4,002,000
442,297
443,901
441,255
9.05
9.02
2.70
156000
117000
273000
9690
162000
Balance Sheet
Exchange rate used is that of the Year End reported
date
As Reported Annual Balance Sheet
Report Date
08/28/2022
08/29/2021
08/30/2020
Currency
Audit Status
USD
Not Qualified
USD
Not Qualified
USD
Not Qualified
Consolidated
Scale
Yes
Thousands
Yes
Thousands
Yes
Thousands
Cash & cash equivalents
Short-term investments
Receivables, net
Merchandise inventories – U.S.
Merchandise inventories – Canada
Merchandise inventories – other international
Merchandise inventories
Other current assets
Total current assets
Land
Buildings & improvements
Equipment & fixtures
Construction in progress
Property & equipment, gross
Less accumulated depreciation & amortization
Property & equipment, net
Operating lease right-of-use assets
Other long-term assets
Total assets
Accounts payable
Current portion long-term debt
Accrued salaries & benefits
Accrued member rewards
Deferred membership fees
Other current liabilities
Total current liabilities
Senior notes
Other long-term debt
Total long-term debt
Less unamortized debt discounts & issuance costs
Less: current portion
Long-term debt, excluding current portion
Long-term operating lease liabilities
Other long-term liabilities
Total liabilities
Common stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Total Costco Wholesale Corp stockholders’ equity
Noncontrolling interests
Total equity
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
10,203,000
846,000
2,241,000
13,160,000
1,966,000
2,781,000
17,907,000
1,499,000
32,696,000
7,955,000
20,120,000
10,275,000
1,582,000
39,932,000
15,286,000
24,646,000
2,774,000
4,050,000
64,166,000
17,848,000
73,000
4,381,000
1,911,000
2,174,000
5,611,000
31,998,000
6,000,000
590,000
6,590,000
(33,000)
73,000
6,484,000
2,482,000
2,555,000
43,519,000
2,000
6,884,000
(1,829,000)
15,585,000
20,642,000
5,000
20,647,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
11,258,000
917,000
1,803,000
10,248,000
1,456,000
2,511,000
14,215,000
1,312,000
29,505,000
7,507,000
19,139,000
9,505,000
1,507,000
37,658,000
14,166,000
23,492,000
2,890,000
3,381,000
59,268,000
16,278,000
799,000
4,090,000
1,671,000
2,042,000
4,561,000
29,441,000
6,800,000
731,000
7,531,000
(40,000)
799,000
6,692,000
2,642,000
2,415,000
41,190,000
4,000
7,031,000
(1,137,000)
11,666,000
17,564,000
514,000
18,078,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
12,277,000
1,028,000
1,550,000
8,871,000
1,310,000
2,061,000
12,242,000
1,023,000
28,120,000
6,696,000
17,982,000
8,749,000
1,276,000
34,703,000
12,896,000
21,807,000
2,788,000
2,841,000
55,556,000
14,172,000
95,000
3,605,000
1,393,000
1,851,000
3,728,000
24,844,000
6,800,000
857,000
7,657,000
(48,000)
95,000
7,514,000
2,558,000
1,935,000
36,851,000
4,000
6,698,000
(1,297,000)
12,879,000
18,284,000
421,000
18,705,000
Cash Flows
Exchange rate used is that of the Year End reported
date
As Reported Annual Cash Flow
Report Date
08/28/2022
08/29/2021
08/30/2020
Currency
Audit Status
USD
Not Qualified
USD
Not Qualified
USD
Not Qualified
Consolidated
Scale
Yes
Thousands
Yes
Thousands
Yes
Thousands
Net income (loss) including noncontrolling interests
$
5,915,000
Depreciation & amortization
$
1,900,000
Non-cash lease expense
$
377,000
Stock-based compensation
$
724,000
Other non-cash operating activities, net
$
76,000
Deferred income taxes
$
(37,000)
Merchandise inventories
$ (4,003,000)
Accounts payable
$
1,891,000
Other operating assets & liabilities, net
$
549,000
Net cash flows from operating activities
$
7,392,000
Purchases of short-term investments
$ (1,121,000)
Maturities & sales of short-term investments
$
1,145,000
Additions to property & equipment
$ (3,891,000)
Acquisitions
Other investing activities, net
$
(48,000)
Net cash flows from investing activities
$ (3,915,000)
Change in bank payments outstanding
Proceeds from short-term borrowings
Proceeds from issuance of long-term debt
Repayments of long-term debt
$
(800,000)
Minimum tax withholdings on stock-based awards
Tax withholdings on stock-based awards
$
(363,000)
Repurchases of common stock
$
(439,000)
Cash dividend payments
$ (1,498,000)
Dividend to noncontrolling interest
$
(208,000)
Acquisition of noncontrolling interest
$
(842,000)
Other financing activities, net
$
(133,000)
Net cash flows from financing activities
$ (4,283,000)
Effect of exchange rate changes on cash & cash equivalents
$
(249,000)
Net change in cash & cash equivalents
$ (1,055,000)
Cash & cash equivalents beginning of year
$ 11,258,000
Cash & cash equivalents end of year
$ 10,203,000
Cash paid during the year for interest
$
145,000
Cash paid during the year for income taxes, net
$
1,940,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
5,079,000
1,781,000
286,000
665,000
85,000
59,000
(1,892,000)
1,838,000
1,057,000
8,958,000
(1,331,000)
1,446,000
(3,588,000)
(62,000)
(3,535,000)
188,000
41,000
(94,000)
(312,000)
(496,000)
(5,748,000)
(67,000)
(6,488,000)
46,000
(1,019,000)
12,277,000
11,258,000
149,000
1,527,000
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,059,000
1,645,000
194,000
619,000
42,000
104,000
(791,000)
2,261,000
728,000
8,861,000
(1,626,000)
1,678,000
(2,810,000)
(1,163,000)
30,000
(3,891,000)
137,000
3,992,000
(3,200,000)
(330,000)
(196,000)
(1,479,000)
(71,000)
(1,147,000)
70,000
3,893,000
8,384,000
12,277,000
124,000
1,052,000
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Costco Wholesale Corp (NMS: COST)
Company Financials
Income Statement
Exchange rate used is that of the Year End reported
date
As Reported Annual Income Statement
Report Date
08/28/2022
08/29/2021
08/30/2020
Currency
Audit Status
USD
Not Qualified
USD
Not Qualified
USD
Not Qualified
Consolidated
Scale
Yes
Thousands
Yes
Thousands
Yes
Thousands
100.00%
1.90%
101.90%
89.52%
8.88%
100.00%
2.02%
102.02%
88.87%
9.61%
0.04%
3.49%
0.09%
0.02%
0.03%
0.02%
0.07%
2.57%
0.91%
3.48%
0.37%
0.04%
0.42%
0.14%
0.01%
0.14%
0.29%
-0.02%
0.27%
0.83%
2.64%
-0.04%
2.61%
100.00%
2.17%
102.17%
88.80%
10.01%
0.03%
3.33%
0.10%
0.05%
0.00%
0.00%
0.06%
2.58%
0.71%
3.29%
0.38%
0.05%
0.42%
0.14%
0.00%
0.15%
0.23%
0.00%
0.23%
0.80%
2.49%
-0.03%
2.45%
Net sales
Membership fees
Total revenue
Merchandise costs
Selling, general & administrative expenses
Preopening expenses
NM
Operating income
Interest expense
Interest income
Foreign-currency transactions gains (losses), net
Other interest income & other income, net
Interest income & other income, net
Income before income taxes – domestic
Income before income taxes – foreign
Income before income taxes
Current federal provison (benefit) for income taxes
Deferred federal provison (benefit) for income taxes
Total federal provison (benefit) for income taxes
Current state provison (benefit) for income taxes
Deferred state provison (benefit) for income taxes
Total state provison (benefit) for income taxes
Current foreign provison (benefit) for income taxes
Deferred foreign provison (benefit) for income taxes
Total foreign provison (benefit) for income taxes
Provision for income taxes
Net income (loss) including noncontrolling interests
Net loss (income) attributable to noncontrolling interests
Net income attributable to Costco Wholesale Corp
Weighted average shares outstanding – basic
Weighted average shares outstanding – diluted
Year end shares outstanding
Net income (loss) per common share – basic
Net income (loss) per common share – diluted
Cash dividends declared per common share
Number of full time employees
Number of part time employees
Total number of employees
Number of common stockholders
Foreign currency translation adjustments
3.50%
0.07%
0.03%
0.05%
0.02%
0.09%
2.59%
0.93%
3.52%
0.36%
-0.02%
0.34%
0.15%
0.00%
0.15%
0.38%
-0.01%
0.37%
0.86%
2.66%
-0.03%
2.62%
Balance Sheet
Exchange rate used is that of the Year End reported
date
As Reported Annual Balance Sheet
Report Date
Currency
Audit Status
Consolidated
Scale
Cash & cash equivalents
Short-term investments
Receivables, net
Merchandise inventories – U.S.
Merchandise inventories – Canada
Merchandise inventories – other international
Merchandise inventories
Other current assets
Total current assets
Land
Buildings & improvements
Equipment & fixtures
Construction in progress
Property & equipment, gross
Less accumulated depreciation & amortization
Property & equipment, net
Operating lease right-of-use assets
Other long-term assets
Total assets
Accounts payable
Current portion long-term debt
Accrued salaries & benefits
Accrued member rewards
Deferred membership fees
Other current liabilities
Total current liabilities
Senior notes
Other long-term debt
Total long-term debt
Less unamortized debt discounts & issuance costs
Less: current portion
Long-term debt, excluding current portion
Long-term operating lease liabilities
Other long-term liabilities
Total liabilities
Common stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Total Costco Wholesale Corp stockholders’ equity
Noncontrolling interests
Total equity
Cash Flows
08/28/2022
USD
Not Qualified
Yes
Thousands
15.90%
1.32%
3.49%
20.51%
3.06%
4.33%
27.91%
2.34%
50.96%
12.40%
31.36%
16.01%
2.47%
62.23%
23.82%
38.41%
4.32%
6.31%
100.00%
27.82%
0.11%
6.83%
2.98%
3.39%
8.74%
49.87%
9.35%
0.92%
10.27%
-0.05%
0.11%
10.11%
3.87%
3.98%
67.82%
0.00%
10.73%
-2.85%
24.29%
32.17%
0.01%
32.18%
08/29/2021
USD
Not Qualified
Yes
Thousands
19.00%
1.55%
3.04%
17.29%
2.46%
4.24%
23.98%
2.21%
49.78%
12.67%
32.29%
16.04%
2.54%
63.54%
23.90%
39.64%
4.88%
5.70%
100.00%
27.47%
1.35%
6.90%
2.82%
3.45%
7.70%
49.67%
11.47%
1.23%
12.71%
-0.07%
1.35%
11.29%
4.46%
4.07%
69.50%
0.01%
11.86%
-1.92%
19.68%
29.63%
0.87%
30.50%
08/30/2020
USD
Not Qualified
Yes
Thousands
22.10%
1.85%
2.79%
15.97%
2.36%
3.71%
22.04%
1.84%
50.62%
12.05%
32.37%
15.75%
2.30%
62.46%
23.21%
39.25%
5.02%
5.11%
100.00%
25.51%
0.17%
6.49%
2.51%
3.33%
6.71%
44.72%
12.24%
1.54%
13.78%
-0.09%
0.17%
13.53%
4.60%
3.48%
66.33%
0.01%
12.06%
-2.33%
23.18%
32.91%
0.76%
33.67%
Exchange rate used is that of the Year End reported
date
As Reported Annual Cash Flow
Report Date
Currency
Audit Status
Consolidated
Scale
08/28/2022
USD
Not Qualified
Yes
Thousands
Net income (loss) including noncontrolling interests
Depreciation & amortization
Non-cash lease expense
Stock-based compensation
Other non-cash operating activities, net
Deferred income taxes
Merchandise inventories
Accounts payable
Other operating assets & liabilities, net
Net cash flows from operating activities
Purchases of short-term investments
Maturities & sales of short-term investments
Additions to property & equipment
Acquisitions
Other investing activities, net
Net cash flows from investing activities
Change in bank payments outstanding
Proceeds from short-term borrowings
Proceeds from issuance of long-term debt
Repayments of long-term debt
Minimum tax withholdings on stock-based awards
Tax withholdings on stock-based awards
Repurchases of common stock
Cash dividend payments
Dividend to noncontrolling interest
Acquisition of noncontrolling interest
Other financing activities, net
Net cash flows from financing activities
Effect of exchange rate changes on cash & cash equivalents
Net change in cash & cash equivalents
Cash & cash equivalents beginning of year
Cash & cash equivalents end of year
Cash paid during the year for interest
Cash paid during the year for income taxes, net
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Starbucks Corp. (NMS: SBUX)
Exchange rate used is that of the Year End reported date
Profitability Ratios
ROA % (Net)
ROE % (Net)
ROI % (Operating)
EBITDA Margin %
Calculated Tax Rate %
Revenue per Employee
10/02/2022
11.08
AvgEqty
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