CASE: A-186B DATE: 06/19/03 COSTCO WHOLESALE CORPORATION FINANCIAL STATEMENT ANALYSIS (B

1. Review Torres assumptions in Exhibit 2. Which assumptions would represent a change from Costcos historical performance? Do you feel her assumptions are appropriate, and if not, which ones would you change?

2. Review Torres forecasted income statement and common-size income statement. Do you feel these are achievable results for Costco?

3. Review Torres forecast in Exhibit 5. How does the rate of expansion (i.e. new store openings) affect the balance sheet and free cash flow? Do you agree with her terminal value assumptions?

4. How does Costcos use of the equity method to account for its ownership of the 20 warehouses in Mexico effect the income statement forecast, the balance sheet forecast, and the discounted cash flow model?

5. Review Torres quantitative checks. Compare her projections with managements forwardlooking comments. Based on these and other constraints (e.g. the effect of competition, historical performance, etc.) do you feel that her forecast is realistic, conservative, or aggressive? What does the theory of reversion to the mean say about Torres projections? Which do you agree with?

6. Would you recommend that Torres buy, hold, or sell her Costcos shares at the price of $35?