Vince Greeney

Wal-Mart vs Costco Research Paper

The two companies my research paper compares are Wal-Mart and Costco. Sam Walton
is the founder of Wal-Mart back in 1969. The headquarters of Wal-Mart is located in
Bentonville, Arkansas. There is now a total of 11,562 Wal-Mart stores in 28 different countries.
Wal-Mart is currently the largest retail company and Costco is second. Costcos first store
opened in Seattle, Washington on September 15, 1983. Currently there is 705 Costco stores open
in 9 different countries.
The financial ratios this paper will use to compare the companies are current ratio, quick
ratio, inventory turnover, total asset turnover, and operating profit margin. The current ratio is
important to my companies to see their inventories liquidity. Whale quick ratio can determine the
liquidity of the companys assets. The more liquid company can generally buy and sell without
compromising value. The company with more liquidity also has more financial freedom. Which
means in changing conditions they can adapt better. Retail companies need to be able to sell the
old assets and inventory because their assets and inventory are always changing. Inventory
turnover is important to retail stores because it can indicate pricing power. It can determine how
good management knows their customers buying patterns. Asset turnover ratio is important to
retail stores because it can indicate how effective and useful a companys assets are to making
sales. Operating profit margin is important ratio for retail stores because they measure how the
company is doing against other competitors. Companies decisions like employees wages will
affect the ratio. Even the current image of the company in the publics eye will impact its
operating profit margin.
Wal-Marts current ratio was .887 in 2011, .882 in 2012, .835 in 2013, .882 in 2014, .969
in 2015. The last year is the highest because Wal-Mart is moving in the direction to have smaller
stores. Wal-Marts Everyday Low Prices marketing campaign directly shows how much
leverage their inventory has, whale competitors cannot pull this off daily. Experts believe WalMart controls pricing of products. Wal-Mart has doesnt think its necessary to have a much
liquid and pay off creditors.
Costcos current ratio was 1.137 in 2011, 1.103 in 2012, 1.195 in 2013, 1.220 in 2014,
1.046 in 2015. Costcos debt has stayed similar over the years whale the assets have changed to
make the store more economic. In 2015, Costco got rid of cashier machines/lines to make the
spaces more useful to sell items. Also, going in to 2015 management tried to lower the liquidity
of the store. Each year about half of Costcos assets is inventory.
Wal-Marts quick ratio was .213 in 2011, .200 in 2012, .203 in 2013, .201 in 2014, .244
in 2015. The increase in 2015 in from less inventory. After 2012, Wal-Mart invested in how
inventory was shipped becoming more economic. Wal-Mart had software related issues dragging
down other assets with it to begin 2012. Wal-Mart does not view the low quick ratio as a
problem.
Costcos quick ratio was .546 in 2011, .480 in 2012, .553 in 2013, .587 in 2014, .462 in
2015. The last year had the lost in assets to be more economic. Debt and other liabilities has
stayed similar. Except in 2012 where the store had a credit crisis. Gas prices falling was one of

Vince Greeney
Wal-Mart vs Costco Research Paper
the factors the store was able to recover from the credit problem. Costco wants to be able to pay
off short term debt with cash instead of inventories.
Walmarts inventory turnover was 8.856 in 2011, 8.490 in 2012, 8.140 in 2013, 7.877 in
2014, 7.909 in 2015. Walmart has had a slow decline in turnover because of increase competition
from online retailers. Wal-Mart had inventory issues in 2013 and 2014 because they were
operating under smaller staffs. In 2014, new CEO and other management left the company. WalMart blamed a poor job market in 2013 for lack of consistent sales. Wal-Mart continues to have a
lower total asset turnover because they sell more grocery items.
Costcos inventory turnover was 12,526 in 2011, 12,511 in 2012, 12,142 in 2013, 11,918
in 2014, 11,511 in 2015. Costco has also had a decline from increased competition from online
retailers. Costcos inventory turnover is higher than Wal-Mart because they sell more brands per
item in store. Costco suggests gas prices falling for the better sales the last two years. Costco
management known for their ability to choose the right items and amount.
Walmarts total asset turnover was 2.391 in 2011, 2.379 in 2012, 2.357 in 2013, 2.326 in
2014, 2.368 in 2015. Wal-Marts total asset turnover has stayed relatively steady because they
have always focused on convenience for the customer. Wal-Mart has continued to focus on
keeping stores up to date. Wal-Mart in past years has lowered the number of brands for each item
they have in inventory.
Costcos total asset turnover was 3.516 in 2011, 3.678 in 2012, 3.663 in 2013, 3.559 in
2014, 3.497 in 2015. Costco cannot match the overall convivence of Wal-Mart leaving them
overall higher. In 2015, Costco employees had to take discounts on wages to lower prices of
items. Costco in 2011 was the lowest because the average amount of items for each customer
was the highest its ever been.
Walmarts operating margin after deprecation was 5.645 in 2011, 5.534 in 2012, 5.570 in
2013, 5.328 in 2014, and 5.261 in 2015. The decrease in the previous two years is from Walmart
paying higher wages to their employees. 2014 is higher than 2015 because there was no
blockbuster movie like Frozen in 2014. In 2011, there was a lot less competition from online
retailers like Amazon. 2011 also had Walmarts most successful Black Friday sales. One of
reasons Walmart went down in 2012 are payroll tax hikes. The other is leaked emails from
executives blaming delayed tax refunds for a poor first quarter of sales.
Costcos operating margin after deprecation was 2.743 in 2011, 2.903 in 2012, 2.859 in
2013, 3.119 in 2014, 3.093 in 2015. Costco has steadily increased because they have not lost any
business to online retailers. Costco is lower than Walmart because they pay their average worker
20$ an hour whale Walmart is 12$ an hour. In 2014, as gas prices dropped, Costco noticed an
increase in sales. Costco has saved money the last two years in an attempted to be better for the
environment.
One reason Wal-Marts stock has changed is due to the decision to go smaller and bring
in money. They are also saving on assets in stores. Wal-Mart in 2013 only had a 1% growth rate.
Wal-Mart stock has also slowed due to online retailers and increased wages for all employees.

Vince Greeney
Wal-Mart vs Costco Research Paper
Wal-Mart invested a billion in ecommerce and plans to do the same next year. Wal-Mart has
become more competitive in the grocery industry. Lower gas prices have increased Wal-Marts
stock. Walmart has also shown the ability to adapt and continue to be the largest retail chain with
no signs of that changing. Certain times of the year Wal-Marts stock will be higher like
Christmas time.
Costcos stock has increased slowly because of the way they separate themselves from
competitors. Experts say Costco has the best financial ratios. Costco stock has gone up in part to
lower gas prices. Costco has remanded strong even with online retailers. Costco has a reputation
of operating their business very efficiently and following all rules. Costco has also proved they
can adapt to a changing economy. Costco is also always looking for new opportunities to serve
customers. Costco has added ecommerce to other countries they are in every year and seeing
early success.
I would agree with Walmarts beta being .2. Walmart runs a low risk business. Business
is simple to understand for consumers. Walmarts huge inventory keeps it from having a section
of inventory items struggle and the rest of the business be affected by it. Wal-Mart also has a
huge consumer base. I moderately agree with Costcos beta of .71. I agree with the beta being
higher than Wal-Mart because Costco has a smaller inventory. Costco also has less customers.
Costco doesnt need to rely on advertising themselves as much as Wal-Mart.
In conclusion, both companys decisions are reflected in their ratios. Other businesss and
consumer decisions can lead to fluctuation in ratio results. Going forward, Wal-Mart will
continue to be the safer business to invest in, whale Costco will be higher risk. The ratios will
stay similar until another competitor like online retailers joins the market. Online shopping could
even dominate the retail business one day.

Vince Greeney
Wal-Mart vs Costco Research Paper
References
http://stock.walmart.com/investors/financial-information/annual-reports-and-proxies/default.aspx
http://www.annualreports.com/HostedData/AnnualReportArchive/c/NASDAQ_COST_2011.pdf
http://www.annualreports.com/HostedData/AnnualReportArchive/c/NASDAQ_COST_2012.pdf
http://www.fool.com/investing/general/2013/11/30/does-wal-mart-have-a-liquidity-problem.aspx
http://www.investopedia.com/articles/personal-finance/081815/invest-costco-first-understandits-balance-sheet.asp
https://www.walmart.com/
http://www.costco.com/
http://www.businessinsider.com/wal-mart-q4-2012-earnings-2013-2
http://corporate.walmart.com/_news_/news-archive/investors/walmart-reports-q4-eps-of-167full-year-eps-of-502-walmart-us-gains-market-share-adds-47-billion-in-comp-sales-for-yearcompany-announces-fy-14-dividend-of-188-up-18-or-1787345
http://www.huffingtonpost.com/news/walmart/

Vince Greeney
Wal-Mart vs Costco Research Paper

Current Ratio

Quick Ratio

1.500

0.800
0.600

1.000

0.400
0.500

0.200
0.000

0.000
2015

2014

2013

WMT

2012

2015

2011

2014

2013

WMT

Costco

Inventory Turnover

2012

2011

COST

Total Asset Turnover

15.000

4.000

10.000
2.000
5.000
0.000

0.000
2015

2014

2013

WMT

2012

2015

2011

2014

2013

2012

WMT

COST

2011

COST

Operating Profit Margin

6.000
4.000
2.000
0.000
2015

2014

2013

WMT

2012

2011

COST

2015

2014

2013

2012

2011

WMT

COST

WMT

COST

WMT

COST

WMT

COST

WMT

COST

Current Ratio

0.969

1.046

0.882

1.22

0.835

1.195

0.882

1.103

0.887

1.137

Quick Ratio

0.244

0.462

0.201

0.587

0.203

0.533

0.2

0.48

0.213

0.546

Inventory Turnover

7.909

11.511

7.877

11.918

8.14

12.142

8.49

12.511

8.856

12.526

Total Assets Turnover

2.368

3.497

2.326

3.559

2.357

3.663

2.379

3.678

2.391

3.516

Operating Profit Margin

5.261

3.119

5.328

2.859

5.57

2.903

5.534

2.8

5.645

2.743