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Costco's Balance Sheet
- 1. COSTCO'S BALANCE SHEET 3 LESSONS FOR INVESTORS
- 2. COSTCO'S BALANCE SHEET CASTS LIGHT ON THREE OF THE RETAILER'S MOST IMPORTANT TRAITS.
- 3. SIZE | LIQUIDITY | SOLVENCY
- 4. ASSETS & EQUITY ARE THERE ENOUGH CURRENT ASSETS (CASH & EQUIVALENTS) TO COVER CURRENT LIABILITIES? DOES EQUITY EXCEED DEBT? SIZE | LIQUIDITY | SOLVENCY
- 5. THESE TRAITS GIVE INVESTORS A SENSE OF COSTCO'S GROWTH POTENTIAL, AS WELL AS OF THE VULNERABILITY OF ITS BUSINESS MODEL.
- 6. BEFORE DIGGING INTO THESE TRAITS, LET’S BRIEFLY REVIEW THE BALANCE SHEET ITSELF.
- 7. EQUITY LIABILITIES ASSETS THE BALANCE SHEET 1. THE BALANCE SHEET REVEALS A COMPANY’S ASSETS, LIABILITIES, AND OWNERS’ EQUITY ON THE FINAL DAY OF A FISCAL QUARTER OR YEAR. 2. THIS IS WHY IT’S OFTEN REFERRED TO AS A SNAPSHOT OF A COMPANY’S FINANCIAL CONDITION. 3. THE “ACCOUNTING EQUATION” HOLDS THAT ASSETS MUST ALWAYS EQUAL LIABILITIES PLUS OWNERS’ EQUITY.
- 8. 1. SIZE
- 9. YOU PROBABLY WON'T BE SURPRISED TO HEAR THAT COSTCO IS ONE OF THE BIGGEST COMPANIES IN AMERICA.
- 10. $71 billion $35 billion $11 billion $117 billion Market Capitalization Total Assets Shareholders' Equity Revenue (ttm) 4 WAYS TO MEASURE COSTCO'S SIZE FOUND ON COSTCO'S BALANCE SHEET
- 11. 148TH151ST COSTCO IS THE 148TH BIGGEST COMPANY ON THE S&P 500 BASED ON EQUITY. IT'S THE 151ST LARGEST WHEN MEASURED BY ASSETS.
- 12. THANKS TO COSTCO'S ALREADY CONSIDERABLE SIZE, IT ISN'T LIKELY TO GROW AS FAST AS, SAY, A NEWLY LISTED GROWTH STOCK.
- 13. 2. LIQUIDITY
- 14. THE CURRENT RATIO IS A COMMON WAY TO MEASURE LIQUIDITY.
- 15. IT’S CALCULATED BY DIVIDING A COMPANY’S CURRENT ASSETS BY ITS CURRENT LIABILITIES.
- 16. $19 BILLION $18 BILLION = 1.03 COSTCO'S CURRENT ASSETS COSTCO'S CURRENT LIABILITIES COSTCO'S CURRENT RATIO
- 17. HOW DOES COSTCO'S CURRENT RATIO COMPARE TO THAT OF OTHER LARGE-CAP STOCKS?
- 18. - 1 2 3 4 5 6 ← 100 BIGGEST S&P 500 COMPANIES → ←CURRENTRATIO→ 54% OF S&P 500 COMPANIES HAVE CURRENT RATIOS BETWEEN 0.75 AND 2.0 THE CURRENT RATIOS OF THE 100 BIGGEST S&P 500 COMPANIES
- 19. BY THIS MEASURE, THEN, COSTCO'S LIQUIDITY IS WITHIN THE USUAL RANGE, FALLING BETWEEN 0.75 AND 2.0.
- 20. 3. SOLVENCY
- 21. LAST BUT NOT LEAST IS SOLVENCY, WHICH IS MEASURED BY THE DEBT-TO- EQUITY RATIO.
- 22. THIS IS CALCULATED BY DIVIDING A COMPANY’S DEBT BY ITS EQUITY.
- 23. $6 BILLION $11 BILLION = 0.56 COSTCO'S DEBT COSTCO'S EQUITY COSTCO'S DEBT-TO- EQUITY RATIO
- 24. THERE’S NO HARD-AND-FAST RULE WHEN IT COMES TO THE DEBT-TO- EQUITY RATIO, THOUGH A SMALLER RATIO (LESS THAN 1) IMPLIES THAT A COMPANY IS BETTER POSITIONED TO SURVIVE AN INTERUPTION TO ITS REVENUE.
- 25. HOW DOES COSTCO'S DEBT-TO-EQUITY RATIO COMPARE? 2.98 2.17 0.74 0.49 0.28 0.20 0.56 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 IBM MCD AA PG JNJ XOM COST
- 26. BECAUSE COSTCO'S DEBT-TO- EQUITY RATIO IS LESS THAN OR EQUAL TO 1.0, IT'S SAFE TO SAY THE COMPANY IS SOLVENT.
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