Cotsco Case Essay

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An analysis of Costco’s financial data from 2000 to 2008 demonstrates that Costco’s performance is nothing short of average. Table 1.1 contains a few financial ratios that demonstrates their position. Even though sales over the years have more than doubled, costs have had a parallel rise. Gross profit margin has remained steady, which signifies that revenues needed to cover operating expenses have remained consistent. Ideally, an upward trend in GPM would be achieved. Average cost of goods sold is 88% of sales, which is easily seen as way too high. This could be remediated by either raising sales prices or negotiating lower costs from suppliers. Operating expenses currently utilized to run the operation are minimal. The biggest area which would provide a direct impact is the reduction of merchandise costs. Total return on assets is stable, at best. Costco should be working toward increasing return on assets, which is a direct reflection of the money going into the organization, but not coming out as a return. Stock holder’s equity is a clear demonstration of this performance. In 2000, it was at 15%, and has decreased in 2008 to 11%, which is actually an increase over prior year. Costco is in need of an aggressive strategy to increase these key financial components, to remain profitable and competitive in the market. Table 1.1 Column1 | Column2 | 2000 | 2007 | 2008 | 2007 vs 2008 | 2000 vs 2008 | Gross Profit Margin | | 12% | 12% | 12% | 0% | 0% | | | | | | | | Operating profit margin (return on sales) | 3% | 2% | 3% | 0% | -1% | | | | | | | | Net profit margin (net return on sales) | 2% | 2% | 2% | 0% | 0% | | | | | | | | Total return on Assets | 7% | 6% | 6% | 0% | -1% |

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