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Costco Wholesale Corp (COST) Extended Graph Analysis

November 12th, 2019 Posted by Extended Analysis No Comment yet

About the Company

costco logo

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

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

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

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

COST FINANCIAL RATIOS

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

COST KEY 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

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

COST LOBBYING AND CONTRIBUTIONS - 2019

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.

COST TOTAL CONTRIBUTIONS BY PARTY RECIPIENT

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

COST 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

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

 

Note:

Research Reports can be found under the company tab.