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Liquidity Ratios
Costcos liquidity has remained a little constrained on account of the nature of its business.
Costco is a leading retail player of USA and most of the retail players have low current ratio.
Costcos current ratio has declined over the last three years thus denoting some liquidity
concerns.
Similarly, the quick ratio which is a more stringent liquidity measure as it removes inventory
(which is not readily convertible to cash) has also been declining over last three years.
Profitability Ratios
The gross profit margin of the company has remained stable during the last three years. Being a
retailer, the company operates on high volume and comparative lower margins. The gross profit
margin of the company is lower than its peers and industry average.
The net profit margin has also demonstrated a stable track record during last three years. The
net profit margin in most of the retail companies is low and similarly Costcos net profit
Retail industry is dominated by few large companies such as Wal-Mart and Amazon. As it has
been facing competitive pressure, the company has not been able to improve its profitability
margin.
Solvency
Costcos solvency position can be considered comfortable given its low Debt/Equity ratio
over the last three years. This implies that there has been successful management of debt
levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.38 is
Market Prospects
Costco operates in a highly competitive market wherein in large players such as Wal-Mart,
Amazon and Target are the price makers. Though Costco is a big chain of retail shop, it has to
I believe the market prospects are positive given the increasing demand scenario. Rising
income levels and changing demographics has created better opportunity for Costco. The
company needs to create a niche strategy for itself which would help it to improve its