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Comparison between two retail companies picked are Walmart and Costco

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
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Reputation of a business


A business’s reputation affects all elements of its operation.  A good reputation allows an organization to attract better employees.  Customers perceive them as providing a higher value, allowing them to charge a premium for their products.  Customer also demonstrate more loyalty by purchasing more and a broader array of products.  They also have a lower cost of capital since the market believes they will be able to continue delivering sustained earnings (Eccles, 2007).  Conversely, a negative reputation will make it more difficult for a firm to hire talented people, decrease the company’s pricing power, make it harder to attract and retain customers, and increase financing costs.  Given the breadth and depth of its effect, the reputation of a business is a key element in its ongoing prosperity and sustainability.

CEO’s reputation

As Alva Group (2017) pointed out, the importance of a CEO’s reputation to the reputation of the business itself depends, to a certain degree, on whether the CEO’s reputation is stronger or weaker than the company’s.  In companies like Amazon and Tesla, where the company is fairly mature and has already established itself with some tenure, perceptions of the CEO have a somewhat muted effect on the company’s reputation – even lagging any changes in the CEO’s reputation by 2-3 months.  In the case of a less-mature company like Uber, impressions of the CEO affected the feelings about the company very strongly and quickly.  A CEO’s reputation is an important component of a company’s reputation – something organizations need to consider – especially when understanding where they are in their lifecycle.

Powerful or fair?

In a choice between a reputation of being powerful or being fair, having a reputation of fairness is far more powerful (pun intended).  While power may impress, it is the use of that power that affects people.  If they cannot trust that the power will be used judiciously, there will always be an undercurrent of disquiet.  On the other hand, fairness engenders trust.  When people believe that decisions will be made based on an understood standard, they will be more willing to participate in and uphold that standard – giving more power to the trait of fairness.

Goodwill in dollars

(goodwill, n.d.)notes that “Goodwill” is built over time and includes the worth of corporate identity and may be worth many times the value of its physical assets.

One view of business goodwill is that it equals the value of business earnings in excess of the fair return on all the other business assets, both tangible and intangible. Three specific methods to determine the dollar value of Goodwill include the Cost, Market, and Income approaches. With Cost, an estimate is made of how much money it would take to rebuild the company from scratch.  With the Market approach, one could subtract the total value of all the other assets from a purchase price.  Income is the most commonly-used approach.  The total business value residual method uses discounted cash flows to determine the total business value, and then the fair market value is subtracted to calculate Goodwill (Business Goodwill, n.d.).

Eccles (2017) points out that, “70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill.”  In the end, I would use this basic guideline to determine the value of Goodwill.  The market value of an organization, multiplied by 75% provides a reasonable estimate of the dollar value of Goodwill.

 

References

Alva Group. (2017).  CEO Reputation vs. Corporate Reputation. Retrieved from:  http://www.alva-group.com/en/case-study/what-is-the-relationship-between-ceo-profile-and-corporate-reputation/

Business Goodwill. (n.d.). Retrieved August 3, 2018, from ValuAdder: https://www.valuadder.com/glossary/business-goodwill.html

Eccles, R. (2007, February). Reputation and Its Risks.Retrieved August 2, 2018, from Harvard Business Review: https://hbr.org/2007/02/reputation-and-its-risks

goodwill. (n.d.). Retrieved August 3, 2018, from Business Dictionary: http://www.businessdictionary.com/definition/goodwill.html

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