Use the company you chose in Week three, along with a comparable company within the same industry. Ratios should be calculated using the two most recent completed years. Make sure to include a link to the financial statements you are using.

Investors and lenders who read financial statements must determine the age, composition, and productivity of operating assets.

Required

For each company, determine:

(Replicate the five steps in the Ratio Analysis Model to perform the analysis.)

1. Formulate the Question
2. Gather the Information from the Financial Statements
3. Calculate the Ratio
4. Compare the Ratio with Other Ratios
5. Interpret the Ratios

The company is Costco. can you help me with this.

he most recent annual report available for Costco was for the year 2018 and all information was derived from that.

The inventory costing method that the company uses is LIFO method i.e. last in first out method. Costco uses this method because it believes that the LIFO method more fairly represents the results of Costcos operations. This is because by using the LIFO method Costco is able to more closely match its current costs with its current revenues.

If Costco uses the alternative method of using FIFO method then its income will be higher during periods of inflation and the level of inventory will also be higher. On the other hand if deflationary pressures exist then its income will be lower and the level of inventory at close will also be lower.

Yes, Costco values its inventory at lower of cost or market (LCM). The company has defined its market as three segments or geographies USA, Canada, and Other International. The factors that Costco might consider in deciding whether or not to write down its inventory are changes in the value of its inventory, drop in the market value of inventory below the book value of inventory and the levels of damaged and unsellable goods.

The last question is not applicable in case of Costco as it does use LCM method with regards to its inventory.