Running head: WALMART, TARGET AND COSTCO FINANCIAL ANALYSIS 1

Walmart, Target and Costco Financial Analysis

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WALMART, TARGET AND COSTCO FINANCIAL ANALYSIS 2

Walmart, Target and Costco Financial Analysis

1. Identification of the three companies.

a. Link to the annual report

Walmart: https://s2.q4cdn.com/056532643/files/doc_financials/2018/annual/WMT-

2018_Annual-Report.pdf

Target: https://corporate.target.com/_media/TargetCorp/annualreports/2017/pdfs/2017-Annual-

Report.pdf?ext=.pdf

Costco: http://phx.corporate-ir.net/External.File?

item=UGFyZW50SUQ9Njg1ODE3fENoaWxkSUQ9Mzk2MDIwfFR5cGU9MQ==&t=1

b. Identify the stock exchange(s) where your company’s stock trades.

Walmart was listed in the New York Stock Exchange in the year 1972. The company

offered 300,000 shares to the public and sold it at a price of $16.50 per share. The $5 million

initial investment can be translated to $31 million dollars in today’s shares. The company rose to

become the most profitable company in the United States by 1988 and became the largest by

revenue in 1989. Walmart has outpaced inflation and the broader stock market to become worth

more than $500 billion today. Walmart has paid its dividend every year from 1974, with the

annual dividend recently hit $2 per share (Kalogeropoulos, 2017).

Target trades in the New York Stock Exchange and was enlisted as an IPO in the year 1967.

The company first opened its store in 1962 and has paid dividends every quarter from its initial

public offering. Target’s revenue base has grown at a rate of 6% annually over the past 25 years

(Target Financial Information, 2018). Target Corporation is the second-largest department store
WALMART, TARGET AND COSTCO FINANCIAL ANALYSIS 3

retailer in the United States after Walmart. However, target has faced stiff competition and the

company’s stocks have not kept pace with the broader market. Target has experienced a 2%

decline in store sales over the past 2 years as a result of competition from other companies

(Bhasin, 2018).

Costco Wholesale Corporation trades at the Nasdaq stock market. Costco first opened its

warehouse in September 1983 and had its initial public offering in December 1985. The

company has experienced massive expansion throughout history and had an expansion of 180%

between the years 2006 and 2017 (Costco Financial Information, 2018). Costco has experienced

massive growth in its stock over the years. The company has also offered one of the best

dividend payments for its shareholders. The annualized ten-year total return for Costco including

its dividend was 16.77% on October 2018 (Nickolas, 2018).

5. Financial Ratio Analysis

a. Computation of Financial Ratios

Walmart Target Costco

=Current assets ÷ Current = 0.76 = 0.95 = 1.02

liabilities
Solvency Ratio
Debt-to-asset Ratio =46,487 ÷ 204,522 = 11,587 ÷ 38,999 = 6,577 ÷ 40,830

=Total debt ÷ Total Assets = 0.22 = 0.30 = 0.16

Walmart Target Costco

=100 × Consolidated   71,879

net income ÷ Net = 1.99% = 4.08% = 2.26%

sales
Return on Assets = 100 × 9,862 ÷ = 100 × 2,934 ÷ = 100 × 3,134 ÷ 40,830

= 100 × Consolidated 204,522 38,999

net income ÷ Total = 4.82% = 7.52% = 7.68%

assets

Return on Equity = 100 = 100 × 3,134 ÷ = 100 × 2,934 ÷ 11,709

= 100 × Consolidated × 9,862 ÷ 77,869  12,799

net income ÷ Total = 12.66% = 24.49% = 25.06%

shareholders' equity

i. Liquidity Ratio

1. Current Ratio

The current ratio is an efficiency and liquidity ratio which measures the ability of a company

to pay its short-term liabilities with the current assets. The industry average is 1 and a high

current ratio is good for a company. ("Current Ratio", 2018). Walmart has a current ratio of 0.76,

Target has a current ratio of 0.95, while Costco’s current ratio is 1.02. Costco has the best current

ratio as it has more assets to pay for its short-term liabilities. Walmart is the worst performing

since its current assets are not sufficient to cater for the company’s short-term liabilities.

ii. Solvency Ratio

1. Debt-asset Ratio
WALMART, TARGET AND COSTCO FINANCIAL ANALYSIS 5

The debt-to-asset ratio is a solvency ratio which measures the amount of total assets which

have been financed by creditors instead of investors. It shows the percentage of assets that have

been funded through borrowing compared with resources which have been funded by investors.

A low debt-to-asset ratio is good for a company as it indicates that the company’s assets have

been financed by investors. The debt-to-asset ratio for the companies were calculated as Walmart

– 0.22, Target - 0.30, Costco 0.16. Costco is the best performing with the lowest debt-to-asset

ratio while Target is the worst performing with the highest debt-to-asset ratio. However, the

debt-to-asset ratio for the three companies are low showing that most of its assets are funded

through investors.

iii. Profitability Ratio

1. Profit Margin

The profit margin is a profitability ratio that measures the percentage of each dollar

which ends up as profit at the end of the year. A high profit margin is good as it shows that a

high percent of the dollar ends up as profit. Walmart has a profit margin of 1.99%, Target 4.08%,

and Costco 2.26%. Target has the highest profit margin while Walmart has the lowest. Target is

thus highly profitable as it returns the highest percentage of profit per unit sale.

2. Return on Assets

The return on asset is a profitability ratio which measures the net income produced by the

total assets. A higher ratio is more favorable to investors as it shows that that the company can

effectively manage its assets (Brigham, 2016). Walmart has an ROA of 4.82%, Target 7.52%,

and Costco 7.68%. Costco has the highest ROA but is fairly equal and competes with that by
WALMART, TARGET AND COSTCO FINANCIAL ANALYSIS 6

Target. Walmart has the lowest ROA showing that it does not manage its assets effectively

compared to other companies.

3. Return on Owner’s Equity

The return on equity is a profitability ratio which measures the ability of a firm to

generate profits for the shareholders that invested in the company. A high ratio is good to

investors because it shows that the company efficiently uses its money to generate their net

income ("Return on Equity", 2018). Walmart has a return to equity of 12.66%, Target’s is

24.99%, and Costco’s is 25.06%. Target and Costco have the highest ROE indicating that the

two companies generate the highest profits for shareholders. Walmart’s ROE is half that of

Costco and Target indicating that its shareholders would have half of the returns from other

companies.

b. Analysis of findings

While the three companies have a stable financial structure, Walmart is the least

profitable company while Costco and Target compete in different aspects. Costco has the best

liquidity and solvency ratio while target has the best profit margin. Costco and Target have a

similar ROA and ROE but Costco’s is higher by a small percentage. The most profitable

company to invest in is thus Costco as it has performed quite well in various ratios. Costco can

be said to have the most stable financial structure and is the most profitable.
WALMART, TARGET AND COSTCO FINANCIAL ANALYSIS 7

References

Bhasin, H. (2018). Top Walmart Competitors. Retrieved from

https://www.marketing91.com/walmart-competitors/

Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial Management:

Theory and Practice, Canadian Edition. Nelson Education.

Current Ratio. (2018). Retrieved from https://accounting-simplified.com/financial/ratio-

analysis/current.html

Costco Financial Information (2018). Retrieved from http://phx.corporate-ir.net/External.File?

item=UGFyZW50SUQ9Njg1ODE3fENoaWxkSUQ9Mzk2MDIwfFR5cGU9MQ==&t=1

Kalogeropoulos, D. (2017). Wal-Mart Stock History: How the World’s Biggest Retailer Created

So Much Wealth for Investors. Retrieved from

https://www.fool.com/investing/2017/01/01/wal-mart-stock-history-how-the-worlds-

biggest-reta.aspx

Nickolas, S. (2018). If You Had Invested Right after Costco's IPO. Retrieved from

https://www.investopedia.com/articles/markets/120115/if-you-had-invested-right-after-

costcos-ipo.asp

Return on Equity (ROE). (2018). Retrieved from

https://www.myaccountingcourse.com/financial-ratios/return-on-equity

Target Financial Information (2018). Retrieved from

https://corporate.target.com/_media/TargetCorp/annualreports/2017/pdfs/2017-Annual-

Report.pdf?ext=.pdf
WALMART, TARGET AND COSTCO FINANCIAL ANALYSIS 8

Walmart Financial Information (2018). Retrieved from

https://s2.q4cdn.com/056532643/files/doc_financials/2018/annual/WMT-2018_Annual-

Report.pdf