Acct 301 Business report for Costco Company discussion

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Question Description

Acct 301 Project part Three(part one and two is attached for your review)

The company I have chosen for my SEC 10-K project is Costco.
Please see link below.

Business Report

For your employer, evaluate your SEC 10-K Company.As a starting point, for project three:

Review financial statements as whole. Use the Notes to the Financial Statements to learn more about your company. What items are displayed in Other Comprehensive Income?

Does your company own treasury stock in the owners’ equity section? Is this value increasing or decreasing?Consider the journal entry approach to the purchase of treasury stock.Treasury stock is displayed on the balance sheet as a negative value in owners’ equity. This is because its normal balance is a debit but owners’ equity normal balances are credits. The Journal Entry to purchase Treasury Stock is only about the cost to acquire (ignores the par value):

Debit Treasury

Credit Cash

Why would a company purchase Treasury Stock?Review the 1004 page pdf book for Treasury Stock. The 1004 page book is a very good searchable pdf file.This is an easy answer where you enumerate the reasons.

Use the statement of owners’ equity to assist in your explanation of stock purchases by your SEC 10-K company. Compare activity in the three year period presented.

Running Head: SEC10-K BUSINESS REPORT Sec 10-K business report for Costco Company Project Two Tiara McCray ACCT 301 2/18/2019 1 Running Head: SEC10-K BUSINESS REPORT Statement of Cash Flows Statement of cash flows is one of the key financial statements for a company. It indicates how changes in balance sheet accounts and income affect cash and cash equivalents. The statement of cash flow reports the amount of cash generated and used over a specified time period, usually a year. The three sections that make up the statement of cash flows include operating activities, investing activities, and financing activities. a) Operating Activities In this section, the principal revenue-generating activities are reported as well as other activities but not investing and financing. Hence any cash flows from current assets and current liabilities are entered in this section. Costco Corporation included net income, non-cash expenses and changes in working capital under this section. The non-cash expenses comprised of depreciation and amortization. Costco added back non-cash expenses and the changes in working capital to the net income from the income statement to arrive at net cash from operating activities of $6,726 million and $5,774 million for the years 2017 and 2018 respectively. b) Investing Activities In this section, any cash flows that a company realized either through additional purchase or disposal of non-current assets are reported. Other investments which are not included in the operating activities are entered in this section as well. These items are obtained from the assets section of the balance sheet. Costco Corporation’s financing activities comprised of additions to property plant and equipment, purchase of short term investments, as well as maturities and sale of short term investments. The net cash used in investing activities amounted to $2,366 million and $2,947 million in 2017 and 2018 respectively. c) Financing Activities Any cash flows that will affect the composition and size of the equity contributed or equity borrowings such as stock, bonds, and dividends. The changes recorded in this section are obtained from the balance sheet’s equity section. The cash flows in this section include cash flows associated with borrowing and loan repayments, as well as issuance and buying back shares. The dividend payment is also treated as a financing activity. Costco’s cash flows in this section majorly comprised of repayment of borrowings, issuance of bonds, repurchase of common stock and cash dividend payments. Purpose of Positive and Negative Values Positive numbers represent cash inflows while negative values represent cash outflows. They are used to show that inflows increase the amount of cash while outflows reduce. For instance, Costco’s net cash from operating activities have positive value implying that there was an increase in the amount of cash as a result of the inflows, while the net cash from operating activities has a negative value, meaning that there was a reduction in the amount of cash because of the outflows. The statement of cash flows is important as gives a clear picture of what is happening to the company’s bank account. It provides a piece of detailed information on how the 2 Running Head: SEC10-K BUSINESS REPORT company’s cash is being generated and used. Furthermore, from the statement, one can figure out whether a company is able to finance new loans, invest in equipment, and hire new personnel among others. Cash flows from operating activities constitutes a company’s revenue-generating activities. This section shows the amount of cash generated by a company from its primary operations. In contrast, the investing cash flows report changes in a company’s long term investments and capital expenditure. The distinction is significant because the cash flows from operating activities do not include long-term capital expenditures or investment costs, which may happen only once in a period. Cash flows from operating activities solely focus on primary activities. In the last two years, there has been a change in the amount of Costco’s cash and cash equivalents. 2017 cash and cash equivalents stood at $4,546 million, and 6,055 in 2018. This change was a result of the decrease in net cash expended from investing activities from $2,366 million to $2,947 million. The decrease in net cash from operating activities was not sufficient to warrant a reduction in the year-end cash and cash equivalents. Sec 10-K link for Costco Company 3
Running Head: SEC10-K BUSINESS REPORT Sec 10-K business report for Costco Company Tiara McCray ACCT 301 1/28/2019 1 SEC10-K BUSINESS REPORT 2 Costco is an American multinational retailer company that specializes in warehousing and selling products including computers, furniture, electronics, home appliances, jewelry, outdoor living among other products. The company operates as a chain of stores in the over 12 countries (United States, Iceland, Canada, Japan, France, Mexico, UK, Australia, South Korea, Taiwan, and Spain.) with 762 warehouses as at August 28, 2018. Costco does not manufacture products but buy merchandise directly from manufacturers and ship them to depots or warehouses. From the consolidated statement of income, net sales for Costco have been increasing tremendously from the year 2016 to 2018. As indicated by the chart below, the company had a net sale of $116, 073 million, which increased to $126,172 million in 2017 and further increased to $138,434 million in the year 2018. Year 2016 2017 2018 Net sales $116, 073 million $126,172 million $138,434 million The above trend for net sales deduces a positive performance by the company. Relatively, the increase in the net sales increases the inventory and accounts receivables. For instance, from a balance sheet, Costco had a merchandise inventory of $9,834million in the year 2017 which increased to $11,040millon in 2018. Typically, where the company sales are higher, it proportionally translates an increase in inventory. Likewise, the account's inventory increased from 2017 to 2018 with $1,432million and $1,669million respectively. Issues related to risks Costco Company experience several risks, both business and operational. First, the company relies on the operational performance of U.S and Canadian markets that comprise 87% and 83% respectively of the total net sales of the company. This means that slow growth rate and adverse market destabilization might hinder the company progress and lead to its collapse. Among the risks that the company experience in the U.S market includes shifts in sales, changes in economic conditions such as increased labor and lack to meet customer needs due to slow innovation and adoption. Additionally, due to unfavourable local laws that regulate operations in a business environment such as leasing and construction of warehouses and depots, the company might experience a risk of inability to successfully implement its strategic plans. Hence, this may affect business expansion thus hindering profitability. Again, as the company aspires to expand its operations in foreign markets, some of the risk associated with this expansion includes difficulties relating and attracting customers due to language and cultural barrier and lucrative competition among the local retailers. Natural calamities such as fire, earthquakes, hurricanes and other catastrophic events may disrupt the company’s operations. The calamities might affect the process of receiving merchandise, shipping, warehousing, and distribution. In addition, failure in the back-up system and other technological tools may limit the company daily operations. For instance, website down times might scare away customers. Computer viruses and telecommunication failures coupled with security breaches affect customer loyalty and ultimately leading to the loss of customer satisfaction and confidence. SEC10-K BUSINESS REPORT 3 Weak internal control systems (ICS) might impact the organization’s stock price and loss of confidence from potential and existing investors. Issues of assurance and financial frauds due to weak auditing systems might also make the company lose millions of money which might consequently delay growth and expansion in long term. Challenges The loyalty of warehouse club members is adversely maintained by business growth and market penetration. Where the company profits decline, members withdraw their support thus impacting the operations. Moreover, Costco experience competition from other warehouse club operators. However, the company has developed strategic plans to mitigate the challenge of competition in the market. The competitive advantage includes adopting the evolution of online selling and purchasing through digital websites and social media which has meticulously improved the financial conditions and convenience in operations. Although Costco has made incredible strategies in digitizing operations, competitors also have better technology capabilities which influence access to merchandise and market entrance thus posing challenge in maintaining market dominance. Sec 10-K link for Costco Company SEC10-K BUSINESS REPORT 4

Tutor Answer

School: UT Austin

see attached:)



Business report



Costco financials
Other comprehensive income describes an entry in the balance sheet that includes
expenses, losses, revenues, and gains under the GAAP principles and IFRS standards that are not
included in the net income in the company’s statement of earnings. These items are included in
other comprehensive income section because they are yet to be realized.
In the Costco company financial report, the other comprehensive income comprises the
investments that are categorized as available-fo...

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