About the Company

Costco is a warehouse club with 770 locations worldwide and selling different kinds of merchandise. They have specialty departments and offer exclusive services to members.The company has 245,000 number of employees as of 2018.

Costco was founded in July 12, 1976 at San Diego, California as Price Club and on September 15, 1983 as Costco in Seattle, Washington. The company is headquartered in Issaquah, Washington, United States. The company was founded by James Sinegal in 1983; Jeffrey Brotman in 1983 and Sol Price in 1976. Costco became public in an initial public offering on December 1, 1985.

Costco is serving the United States, Canada, United Kingdom, Australia, Mexico, Japan, China, Taiwan, Spain, France, South Korea and Iceland. Costco Wholesale Corp is under Discount Store Industry and Consumer Defensive Sector. 

Costco Wholesale Corp (COST) Extended Graph Analysis

 

1. COST CASH FLOWS

	2015	2016	2017	2018	2019	2019 TTM
Net cash provided by operating activities	4,285,000,000	3,292,000,000	6,726,000,000	5,774,000,000	6,356,000,000	6,356,000,000
Net cash used for investing activities	-2,480,000,000	2,345,000,000	-2,366,000,000	-2,947,000,000	2,865,000,000	2,865,000,000
Net cash provided (used for) financing activities	-2,324,000,000	-2,419,000,000	-3,218,000,000	1,281,000,000	-1,147,000,000	-1,147,000,000
Capital expenditure	-2,393,000,000	-2,649,000,000	-2,502,000,000	-2,969,000,000	-2,998,000,000	-2,998,000,000
Free cash flow	1,892,000,000	643,000,000	4,224,000,000	2,805,000,000	3,358,000,000	3,358,000,000

Facts:

• The net cash provided by operating activities was $6.356 billion in 2019 trailing twelve months.
• Net cash used for investing activities was $2.865 billion in 2019 trailing twelve months.
• Net cash provided (used for) financing activities was -$1.147 billion in 2019 trailing twelve months.
• Capital expenditure was -$2.998 billion in 2019 trailing twelve months.
• Free cash flow was $3.358 billion in 2019 trailing twelve months.

Explanation:

• Cash from operating activities had a growth of 48 percent in five years.
• Cash from investing activities consists of investment in property, plant and equipment and purchases of investments.
• Net cash provided by financing activities were dividends payments and common stock repurchased.
• Capital expenditures were investments in property, plant and equipment.
• Free cash flows was erratic in movement in the last five years, however, it has grown 77 percent in five years.

Interpretation

The company’s cash flow was stable and has never suffered negative in the last five years.

 

2. COST BALANCE SHEET

	2015	2016	2017	2018	2019
Total cash	6,419,000,000	4,729,000,000	5,779,000,000	7,259,000,000	9,444,000,000
Total current assets	17,299,000,000	15,218,000,000	17,317,000,000	20,289,000,000	23,485,000,000
Net property, plant and equipment	15,401,000,000	17,043,000,000	18,161,000,000	19,681,000,000	20,890,000,000
Total non-current assets	16,141,000,000	17,945,000,000	19,030,000,000	20,541,000,000	21,915,000,000
Total assets	33,440,000,000	33,163,000,000	36,347,000,000	40,830,000,000	45,400,000,000
Short-term debt	1,283,000,000	1,100,000,000	86,000,000	0	1,699,000,000
Total current liabilities	16,540,000,000	15,575,000,000	17,495,000,000	19,926,000,000	23,237,000,000
Long-term debt	4,864,000,000	4,061,000,000	6,573,000,000	6,487,000,000	5,124,000,000
Total liabilities	22,823,000,000	21,084,000,000	25,569,000,000	28,031,000,000	30,157,000,000
Total stockholders’ equity	10,617,000,000	12,079,000,000	10,778,000,000	12,799,000,000	15,243,000,000

Facts:

• The total cash was $9.444 billion in 2019.
• Current assets were $23.485 billion in 2019.
• Net property, plant and equipment was $20.890 billion in 2019.
• Non-current assets were $21.915 billion in 2019.
• Total assets were $45.400 billion in 2019.
• The short-term debt was $1.699 billion in 2019.
• Current liabilities were $23.237 billion in 2019.
• Long-term debt was $5.124 billion in 2019.
• Total liabilities were $30.157 billion in 2019.
• Stockholders equity was $15.243 billion in 2019.

Explanation:

• Total cash represents 40 percent of total current assets.
• Current assets represents 52 percent of total assets.
• Net property, plant and equipment represents 95 percent of non-current assets.
• Non-current assets represents 48 percent of total assets.
• Total assets had a growth of 36 percent in five years.
• Short-term debt represents 7 percent of current liabilities.
• Current liabilities represents 77 percent of total liabilities.
• Long-term debt represents 17 percent of the total liabilities.
• Total liabilities represents 66 percent of the total liabilities and equity.
• Total stockholders equity represents 34 percent of the total liabilities and equity.

Interpretation

Total cash and total assets is increasing year-over-year in the last five years. Its total cash represents 20 percent of the total assets which is good and it shows that the management is efficient in producing liquid resources for the business operation. Its financial health shows that the company has enough cash to pay for its current obligations.

 

3. COST FINANCIAL RATIOS

	2015	2016	2017	2018	2019	TTM
Asset Turnover (avg)	3.50	3.56	3.71	3.67	3.54	3.54
Return on Asset (ROA) %	7.15	7.06	7.71	8.12	8.49	8.49
Return on Equity (ROE) %	20.74	20.71	23.44	26.59	26.10	26.10
Financial Leverage (avg)	3.15	2.75	3.37	3.19	2.98	2.98
Return on Invested Capital %	13.69	14.18	15.78	17.44	17.09	17.09
Interest Coverage	30.06	28.21	31.14	28.94	32.77	32.77

Facts:

• Asset turnover was averaging 3.54 in 2019 and the trailing twelve months.
• Return on assets was 8.49 percent in 2019 and the trailing twelve months.
• Return on equity was 26.10 percent in 2018 and the trailing twelve months.
• Financial leverage was averaging 2.98 in 2019 and the trailing twelve months.
• The return on invested capital was 17.09 percent in 2019 and the trailing twelve months.
• Interest coverage was 32.77 in 2019 and the trailing twelve months.

Explanation:

• Asset turnover indicate that for every dollar invested in assets the company generate an average of $3.54 sales.
• Return on assets indicates that the company generates 8.49 cents of net income for every dollar invested in assets.
• Return on equity indicates that for every dollar invested in equity it generates 26 cents of net income.
• Financial leverage means that for every dollar in equity, COST had $2.98 in total assets, it borrowed the other $1.98. The ratio is fairly conservative.
• Return on invested capital means that the company makes a 17.09 percent return over the invested capital. In other terms, the company makes a $0.17 return for every $1 over the invested capital.
• Interest coverage indicates that the company is making more than enough cash to pay for its current interest obligations on its debt and extra cash left over to pay for the principal. In other words, the company is making 32.77 times more earnings than current interest payments.

Interpretation

Financial ratio analysis indicates that the company has a good financial performance in the last five years.

 

4. COST INCOME AND MARKET

	2015	2016	2017	2018	2019	TTM
Sales	116,199,000,000	118,719,000,000	129,025,000,000	141,576,000,000	152,703,000,000	152,703,000,000
EBIT	3,624,000,000	3,672,000,000	4,111,000,000	4,480,000,000	4,737,000,000	4,737,000,000
Net Income	2,377,000,000	2,350,000,000	2,679,000,000	3,134,000,000	3,659,000,000	3,659,000,000
EBITDA	4,855,000,000	5,007,000,000	5,543,000,000	6,038,000,000	6,407,000,000	6,407,000,000
Market Capitalization	71,024,000,000	70,327,000,000	81,726,000,000	89,732,000,000	94,542,000,000	130,499,000,000
Intrinsic Value	143,216,880,173	141,158,371,538	134,670,225,036	156,583,026,744	129,618,081,523	244,423,517,581

Facts:

• Total sales were $152.7 billion in 2019 and the trailing twelve months.
• EBIT was $4.737 billion in 2019 and the trailing twelve months.
• Net income was $3.659 billion in 2019 and the trailing twelve months.
• EBITDA was $6.407 billion in 2019 and the trailing twelve months.
• Market capitalization was $130.499 billion in the trailing twelve months.
• Intrinsic value was $244 billion in the trailing twelve months.

Explanation:

• Sales increases year-over-year at an average rate of 6 percent.
• Sales has a growth of 31 percent in five years.
• EBIT has a growth of 31 percent in five years.
• EBIT represents 3 percent of sales.
• Net income increases year-over-year at an average of 9 percent.
• Net income has a growth of 54 percent in five years.
• Net income represents 2.4 percent of sales.
• EBITDA has a growth of 32 percent in five years.
• EBITDA represents 4 percent of sales.
• Market capitalization increases 84 percent from 2015 to current date.
• Intrinsic value increases 71 percent from 2015 to current date.
• Intrinsic value is greater by 87 percent against market value.

Interpretation

Income and market are trending up from 2015 to current date. It shows that the company is profitable. Moreover, it indicates that the stock value of COST is undervalued.

 

5. COST EXECUTIVE COMPENSATION

	2014	2015	2016	2017	2018
Key Executive Compensation	12,287,863	17,319,745	21,561,342	21,924,799	23,803,010
W. Craig Jelinek/ President and CEO	5,624,658	6,340,393	6,503,276	6,620,969	7,408,513
Richard A. Galanti/ EVP and CFO	3,352,768	3,745,757	3,905,567	3,988,712	4,286,893
Joseph P. Portera/ EVP and COO, Eastern and Canadian Division	3,310,437	3,645,509	3,770,037	3,828,591	4,100,211
Paul G. Moulton/ EVP and Chief Information Officer	0	3,588,086	3,728,424	3,773,349	4,022,591
James Murphy/ EVP and COO, International Division	0	0	3,654,038	3,713,178	3,984,802

Facts:

• Total key executive compensation was $23.8 million in 2018.
• W. Craig Jelinek total compensation was $7.4 million in 2018.
• Richard A. Galanti total compensation was $4.287 million in 2018.
• Joseph P. Portera total compensation was $4.1 million in 2018
• Paul G. Moulton total compensation was $4.0 million in 2018.
• James Murphy’s total compensation was $3.984 million in 2018.

Explanation:

• Total key executive compensation represents 0.76 percent of the net income in 2018.
• W. Craig Jelinek total compensation was 31 percent of the total key executive compensation.
• Richard A. Galanti total compensation in 2018 represents 18 percent of the total key executive compensation.
• Joseph P. Portera total compensation represents 17 percent of the total key executive compensation in 2018.
• Paul G. Moulton total compensation in 2018 represents 17 percent of the total key executive compensation.
• James Murphy’s total compensation in 2018 represents 17 percent of the total key executive compensation.

Interpretation

The disclosed above key executives compensation are the most highly compensated executive officers during the year.

 

5.a COST KEY EXECUTIVE COMPENSATION CATEGORIZED

	2014	2015	2016	2017	2018
Key Executive Compensation
Salary	1,965,098	2,651,553	3,299,136	3,445,096	3,540,000
Bonus	182,607	516,979	290,759	506,650	387,660
Annual Other Income	0	0	0	0	0
Restricted Stock Award	9,805,560	13,706,282	17,210,130	17,128,727	18,897,605
Securities Option	0	0	0	0	0
LTIP Payout	0	0	0	0	0
Non-equity compensation	0	0	0	0	0
Other compensation	302,733	401,075	539,461	554,188	574,825
Total	12,287,863	17,319,745	21,561,342	21,924,799	23,803,010

Facts:

• The key executive compensation classified into the following:
  • Salary $3.540 million
  • Bonus $388 thousand
  • Restricted stock award $18.9 million
  • Other compensation $575 thousand

Explanation:

• Basic salary represents 15 percent of the total key executive compensation.
• Bonus represents 2 percent of the total key executive compensation.
• Restricted stock award represents 79 percent of the total key executive compensation.
• Other compensation is 2 percent of the total key executive compensation.

 

6. COST LOBBYING AND CONTRIBUTIONS

2019	USD
Lobbying	210,000
Contributions	104,168
Total	314,168

Facts:

• Lobbying in 2019 was $210 thousand.
• Contributions in 2019 was $104.2 thousand.
• Total lobbying and contributions in 2019 was $314 thousand.

Explanation:

• Lobbying represents 67 percent of the total lobbying and contributions in 2019.
• Contributions represents 33 percent of the total lobbying and contributions in 2019.

	Democrats	Republicans	Total
1990	1,100	1,000	2,100
1992	6,800	12,950	19,750
1994	123,700	4,300	128,000
1996	42,600	5,600	48,200
1998	81,800	1,000	82,800
2000	192,500	9,300	201,800
2002	71,500	2,500	74,000
2004	276,503	5,500	472,003
2006	184,300	6,000	207,070
2008	314,900	8,300	325,420
2010	126,000	20,200	146,200
2012	404,000	22,900	551,998
2014	117,200	1,700	143,800
2016	524,120	19,100	545,544
2018	297,300	30,600	340,346
2020	90,161	7,200	104,168
TOTAL	2,854,484	158,150	3,012,634

Facts:

• The total lobbying and contributions for Democrats and Republicans were:
  • 1990 $2,100
  • 1992 $19,750
  • 1994 $128,000
  • 1996 $48,200
  • 1998 $82,800
  • 2000 $201,800
  • 2002 $74,000
  • 2004 $472,003
  • 2006 $207,070
  • 2008 $325,420
  • 2010 $146,200
  • 2012 $551,998
  • 2014 $143,800
  • 2016 $545,544
  • 2018 $340,346
  • 2020 $104,168

Explanation:

Costco is spending lobbying and contributions since 1990 and onwards to the present date as seen above. The Federal Election Commission released the data for the current election cycle on October 16, 2019.

TOTAL CONTRIBUTIONS BY SOURCE OF FUNDS

Period	Individuals	Soft Indivs
1990	104,168
1992	318,821	11,025
1994	543,194	2,100
1996	118,800	25,000
1998	426,836	125,000
2000	146,195	0
2002	323,420	0
2004	207,070	0
2006	282,003	0
2008	69,000	5,000
2010	201,450	250
2012	74,750	8,000
2014	48,181	0
2016	27,975	100,000
2018	19,700	0
2020	2,100	0
Totals	2,913,663	276,375

Facts:

• The total contributions by source of funds was:
  • Individuals $2,913,663
  • Soft Indivs   $276,375
  • Overall total $3,190,038

Explanation:

The election cycles shown above in the table actually represent two-year period, example in 2014 election cycle runs from January 1, 2013 to December 31, 2014. 

 

7. COST FINANCIAL STRENGTH

DATA:

Working capital	248,000,000
Total assets	45,400,000,000
Sales	152,703,000,000
EBIT	4,737,000,000
Market value of equity	134,188,000,000
Book value of total liabilities	30,157,000,000
Retained earnings	10,258,000,000

CALCULATION

	Ratio	Score	Result
A – Working Capital / Total Assets	0.01	1.20	0.01
B – Retained Earnings / Total Assets	0.23	1.40	0.32
C – EBIT / Total Assets	0.10	3.30	0.34
D – Market Value of Equity / Book Value of Total Liabilities	4.45	0.60	2.67
E – Sales / Total Assets	3.36	1.0	3.36
Z-Score			6.70

Formula: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

 

Explanation

Z-Score is a statistical measurement that compare data points from different sets of data to find correlations. This measurement by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. This measure indicates the probability of bankruptcy.

Interpretation

The calculated Z-Score of Costco was 6.70. In Dr. Edward Altman grading scale of 3.0 plus indicates that the company will not declare bankruptcy. The company is far from bankruptcy and investors should not be worried about buying the stocks. It means that the company is financially healthy.

This measurement categorized the profitability or return on investment, liquidity, leverage and the efficiency in operating.

 

CITATION

https://www.costco.com/

https://www.sec.gov/cgi-bin/browse-edgar?CIK=COST&owner=exclude&action=getcompany&Find=Search

https://www.opensecrets.org/orgs/summary.php?id=D000000703
Researched and written by Criselda 

Twitter: criseldarome