The two retail companies picked are Walmart and Costco whose 2017 Financial statement links are provided below: WALMART https://www.nasdaq.com/symbol/ wmt/financials?query=income- statement COSTCO https://www.nasdaq.com/symbol/ cost/financials?query=income- statement Both organizations are well known brands and position themselves well with their customer base. Walmart’s value proposition is “We save people money so they can live better”. On the other hand, Costco’s value proposition is “All-in-one convenience and everyday affordability”. Both retailers focus on cost saving for their customers. Looking at their financial statements and by analyzing them a few key areas are evident when comparing the two organization. Looking at the current ratio and quick ratio we can determine the short-term solvency of each organization. The current ratio can be determined by dividing the assets by the liabilities. Walmart’s current ratio sits at 0.86 while Costco’s sits at 0.99. The quick ratio is c...
The two retail companies picked are Walmart and Costco whose 2017 Financial statement links are provided below:
WALMART
https://www.nasdaq.com/symbol/
COSTCO
https://www.nasdaq.com/symbol/
Both organizations are well known brands and position themselves well with their customer base. Walmart’s value proposition is “We save people money so they can live better”. On the other hand, Costco’s value proposition is “All-in-one convenience and everyday affordability”. Both retailers focus on cost saving for their customers.
Looking at their financial statements and by analyzing them a few key areas are evident when comparing the two organization.
Looking at the current ratio and quick ratio we can determine the short-term solvency of each organization. The current ratio can be determined by dividing the assets by the liabilities. Walmart’s current ratio sits at 0.86 while Costco’s sits at 0.99. The quick ratio is calculated by taking the total current assets excluding total inventories and dividing it by its total current liabilities. Walmart’s quick ratio sits at 0.22 while Costco’s is at 0.43.
Both organizations indicate that they may have difficulties meeting their current obligations. However, this may not be significant if the organizations have great long-term prospects coming into play.
Next looking at the debt vs equity and cash coverage helps determine the long-term solvency of the organization.
Walmart’s current portion of long term debt sits at $3,902,000 and its long-term debt was at $42,081,000 million while total equity was at $77, 798,000 which brings its Debt-to-Equity to 0.59. Costco’s current position of long term debt is at $ 86,000 and its long-term debt was at $6,573,000 million while its total equity was at $10,778,000. Which brings its Debt-to-Equity to 0.61.
Both organizations are very similar, with a high debt to equity ratio which shows that they have been growing their business with debt.
Looking at both organizations cash coverages, Walmart sits at 0.1 while Costco’s sits at 0.33 both indicate that they could have potential issues with short term liquidity.
Reviewing the key ratios helps better understand the health of the organization, however although Walmart carries a higher debt than Costco, its operating and profit margins are 5% and 3% compared to Costco’s at 3% and 2% respectively.
Overall Walmart is in a better position and can solidify its track record by looking at ways to reduce its overall debt through innovative ways in the future.
References:
Rogers, A. (2014). Company prepared to win on four key customer dimensions – price, assortment, experience and access. Retrieved from https://news.walmart.com/news-
Lango, L. (2017). Costco Wholesale Corporation (COST) Stock Is a Buy at This Discount Price. retrieved from https://investorplace.com/
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