Description
Kindly read the attached memo first. It will guide you on what to do.
The second attachment is to answer for you to be able to answer the memorandum.
The video link is on youtube that talks more about the case analysis about Costco.
1. Does Costco beat out the competition when it comes to travel? ( duration 2:11sec)
2. How Costco managers to keep their price so low (6:37sec)
3.Nightly Business Report: Costco strikes a new deal (2:47)
4. Costco under Pressure to compete with Amazon online.
Those are the list of videos that will serve as a guild for the case analysis.
if you have any question let me know, thanks
Unformatted Attachment Preview
Purchase answer to see full attachment
Explanation & Answer
Hey, check this out
1
Costco Analysis
Student’s Name
Institutional Affiliation
Course
Instructor’s Name
Date
2
Costco Business model
The business focuses on the strategy of low pricing, limited selection and has a shopping
environment relatable to treasure-hunt. Treasure hunting is whereby a business keeps on
adjusting the selection of products, especially the luxury items and offering irresistible deals such
that consumers spend more. Using this strategy, customer’s purchase more of the discounted
products in wholesale. The brand Kirkland is the best Costco brand; high quality compared to
other substitutable national brands and it sells most using this strategy. The business is able to
generate high sales volumes and an increase in inventory turnover. Costco has created a good
reputation from this which have led to customer’s trust thus, they join or renew their membership
subscriptions annually. Customer satisfaction contributed by good quality bargains is one thing
that has increased Costco’s productivity (Schmidt, 2004). Jim Sinegal being the CEO has also
significantly contributed to the company’s productivity because he pays attention to pricing
which is the major strategy of the business. He impacts strategic courses that would have an
effect to the company in the long run.
Costco also focuses on paying good wages and providing a good working environment to
employees which has equated to high productivity and valuable employees. The difference with
other companies when it comes to workers compensation is that Costco maintains a relatively
low compensation for executives and a reasonable employee compensation (Berman, 2010).
Through selling in bulk, the company is able to minimize the operational costs and increase
inventory ratios. No stocking of goods is required hence the company incurs low labor costs.
Selling in wholesale also leads to a high turnover ratio and lowers the day’s inventory
outstanding ratio in the cash conversion cycle.
Analysis
3
Financial analysis
Using financial ratios, liquidity, profitability and leverage ratios, Costco is highly
profitable and it is sustainable in the long run. The company records a current ratio of 1.05 which
shows that the company is in a position to meet its current liabilities using the current assets; it
shows that the company is sustainable in the short run. The asset turnover ratio is 11.54 which
shows that Costco is using its assets maximally to generate revenues indicates high profitability;
the company holds onto inventory for less than 12 days. There is 2% profit margin which shows
that Costco ultra-low prices is a good and manageable policy. The return on assets percentage is
6% which shows the assets are being put into use to generate the company’s revenue; assets are a
big investment in its operations. The return on equity is $0.13 which indicates the business
generates a good profit based on the shareholder’s equity. Looking at the analysis of Costco’s
expansion outside the US, the business has been very ...
