Question
Analysis and Interpretation of Liquidity and Solvency Balance sheets and income statements for Costco Wholesale Corporation follow. Costco Wholesale Corporation Consolidated Statements of Earnings For
Analysis and Interpretation of Liquidity and Solvency Balance sheets and income statements for Costco Wholesale Corporation follow.
Costco Wholesale Corporation | |||
---|---|---|---|
Consolidated Statements of Earnings | |||
For Fiscal Years Ended ($ millions) | August 28, 2016 | August 30, 2015 | August 31, 2014 |
Revenue | |||
Net Sales | $116,073 | $113,666 | $110,212 |
Membership fees | 2,646 | 2,533 | 2,428 |
Total revenue | 118,719 | 116,199 | 112,640 |
Operating expenses | |||
Merchandise costs | 102,901 | 101,065 | 98,458 |
Selling, general and administrative | 12,068 | 11,445 | 10,899 |
Preopening expenses | 78 | 65 | 63 |
Operating Income | 3,672 | 3,624 | 3,220 |
Other income (expense) | |||
Interest expense | (133) | (124) | (113) |
Interest income and other, net | 80 | 104 | 90 |
Income before income taxes | 3,619 | 3,604 | 3,197 |
Provision for income taxes | 1,243 | 1,195 | 1,109 |
Net income including noncontrolling interests | 2,376 | 2,409 | 2,088 |
Net income attributable to noncontrolling interests | (26) | (32) | (30) |
Net income attributable to Costco | $2,350 | $2,377 | $2,058 |
Costco Wholesale Corporation | |||
---|---|---|---|
Consolidated Balance Sheets | |||
($ millions, except par value and share data) | August 28, 2016 | August 30, 2015 | |
Assets | |||
Current assets | |||
Cash and cash equivalents | $3,379 | $4,801 | |
Short-term investments | 1,350 | 1,618 | |
Receivables, net | 1,252 | 1,224 | |
Merchandise inventories | 8,969 | 8,908 | |
Deferred income taxes and other current assets | 268 | 228 | |
Total current assets | 15,218 | 16,779 | |
Property and equipment | |||
Land | 5,395 | 4,961 | |
Buildings and improvements | 13,994 | 12,618 | |
Equipment and fixtures | 6,077 | 5,274 | |
Construction in progress | 701 | 811 | |
Gross property and equipment | 26,167 | 23,664 | |
Less accumulated depreciation and amortization | (9,124) | (8,263) | |
Net property and equipment | 17,043 | 15,401 | |
Other assets | 902 | 837 | |
Total assets | $33,163 | $33,017 | |
Liabilities and equity | |||
Current liabilities | |||
Accounts payable | $7,612 | $9,011 | |
Current portion long-term debt | $1,100 | $1,283 | |
Accrued salaries and benefits | 2,629 | 2,468 | |
Accrued member rewards | 869 | 813 | |
Deferred membership fees | 1,362 | 1,269 | |
Other current liabilities | 2,003 | 1,695 | |
Total current liabilities | 15,575 | 16,539 | |
Long-term debt, excluding current portion | 4,061 | 4,852 | |
Other liabilities | 1,195 | 783 | |
Total liabilities | 20,831 | 22,174 | |
Equity | |||
Preferred stock, $0.005 par value: | |||
100,000,000 shares authorized; no shares issued and outstanding | 0 | 0 | |
Common stock, $0.005 par value: | |||
900,000,000 shares authorized; | |||
437,524,000 and 437,952,000 shares issued and outstanding | 2 | 2 | |
Additional paid-in-capital | 5,490 | 5,218 | |
Accumulated other comprehensive loss | (1,099) | (1,121) | |
Retained earnings | 7,686 | 6,518 | |
Total Costco stockholders equity | 12,079 | 10,617 | |
Noncontrolling interests | 253 | 226 | |
Total equity | 12,332 | 10,843 | |
Total liabilities and equity | $33,163 | $33,017 |
(a) Compute Costcos current ratio and quick ratio for 2016 and 2015. (Round answers two decimal places.) 2016 current ratio = Answer 2015 current ratio = Answer 2016 quick ratio = Answer 2015 quick ratio = Answer (b) Compute Costcos times interest earned and its liabilities-to-equity ratios for 2016 and 2015. (Round answers two decimal places.) 2016 times interest earned = Answer 2015 times interest earned = Answer 2016 liabilities-to-equity = Answer 2015 liabilities-to-equity = Answer (c) Which of the following statements best describes Costco's liquidity or solvency?
Costco's liabilities-to-equity ratio increased during 2016 thus its solvency has improved.
Costco's times interest earned is high thus there is concern for Costco's solvency.
Costco's quick and current ratios slightly increased therefore its liquidity has declined.
Costco's times interest earned ratio is high thus solvency is not a concern for Costco.
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