Costco Vs Sam's Club

Financial Analysis

Costco Vs Sam's Club

Analysis of the financial statements of any company is the best method to evaluate the performance of the company's business activities. These analyses are done by both internal and external users of the financial statements. Investors and creditors are the main users of the financial statements externally and internally the finance department of the company is responsible to measures the business activities. In order to evaluate and accomplish this task of designing statements; income statement, balance sheet, statement of equity and cash flow statements are developed by the companies. I have evaluated and analyzed the performance of two competitor companies including Costco and Sam's Club. The information was extracted from yahoo finance (2013). Both companies are performing at their best but in comparison we had to look for the one which is going below the benchmark and which one is performing more powerfully in the market in comparison with its competitor. Further analyses are required to evaluate which company is declining and which one is enjoying the stable growth of business. Ratios are the best indicators of performance of any company. I have selected the 3 years; 2010, 2011 and 2012 for the financial analysis.

EXHIBIT 1

Profitability Ratios

COSTCO

2010

2011

2012

Industry Median*

Return on equity (%)

11.92%

11.63%

13.65%

12.40%

Return on assets (%)

5.47%

5.46%

6.30%

5.74%

Profit margin (%)

1.71%

1.68%

1.76%

1.72%

SAM'S CLUB

2010

2011

2012

Industry Median*

Return on equity (%)

20.34%

23.91%

22.01%

22.09%

Return on assets (%)

8.41%

9.07%

8.12%

8.53%

Profit margin (%)

3.54%

3.91%

3.54%

3.66%



The above table shows the calculated ratios for both companies for 3 previous years. Initially start with the return on equity of costco, the figure on this ratio was previous at around 11% but it has now increased by in the last year of 2012 to 13% which is a good sign for the company. But if we see the growth at wal mart sam's club side we can notice the huge figures of this ratio, in 2010, sam's club had 20% return on equity but till the last year of 2012 this ratio is giving the number of 22%. Return on equity of sam's club is far high comparing to the costco. Sam's club is making more profit on its equity or in other words we can say that sam's club is utilizing its equity more efficiently than the costco. Second ratio is of return on assets, this ratio is one of the important ratios to determine the performance of the company. Return on assets shows that to what extent company is effectively utilizing its assets in order to make the profits. Return on assets for costco in 2010 was around 5% and with the growing trend it was around 6% in the last year 2012. But by looking at the ratios of sam' club we can say that sam's club is more efficiently utilizing its assets in order to make the profits. As in year 2010 return on assets for sam's club was around 8% and increased in 2011 to 9% but little decreased in 2012 and came at 8% which is still higher than costco. Profit margin ratio is the most appropriate ratio in ...