Costco Internal Assessment: Strategy and Financial Analysis
This paper presents a two-part internal assessment of Costco Wholesale Corporation. The qualitative section examines the company's history, resources, capabilities, core competencies, business model, and strategic intent, highlighting Costco's membership-based revenue structure, low-cost pricing strategy, and competitive employee compensation practices. The quantitative section analyzes financial data from 2016 to 2018, calculating and interpreting profitability, liquidity, leverage, and activity ratios. Together, the two parts reveal a company with consistent revenue growth, improving asset utilization, and a measured approach to debt — while identifying accounts receivable collection speed as an area for potential improvement.
- Company Overview: Costco history, mission, and corporate profile
- Resources, Capabilities, and Core Competencies: Tangible assets, intangibles, and strategic strengths
- Business Model, Strategic Intent, and Long-Term Objectives: Membership model, pricing strategy, and growth goals
- Qualitative Strategic Synthesis: Employee compensation, sustainability, and strategic conclusions
- Sales and Profitability Data: Revenue and net income figures for 2016–2018
- Financial Ratio Analysis and Summary: Ratio calculations, interpretations, and financial health
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What makes this paper effective
- The two-part structure cleanly separates qualitative strategy analysis from quantitative financial analysis, making the argument easy to follow and the evidence easy to locate.
- The qualitative section connects Costco's operational decisions — such as limiting product selection and paying competitive wages — directly to strategic outcomes like inventory turnover and employee retention.
- The financial summary section does not merely report ratios but interprets them in business context, explaining what each ratio means for managerial decision-making.
Key academic technique demonstrated
The paper demonstrates how to triangulate qualitative and quantitative evidence to build a coherent strategic assessment. Rather than treating financial ratios as isolated numbers, the author links them back to strategic choices described in Part 1 — for example, connecting the low-cost model to stable revenue and the membership fee structure to earnings resilience during economic downturns.
Structure breakdown
The paper opens with a company history and overview, then moves through resources, capabilities, business model, and strategic objectives before synthesizing the qualitative analysis. Part 2 presents three years of sales and profit data in tabular form, followed by four categories of financial ratios (profitability, liquidity, leverage, and activity), and closes with an interpretive summary tying the numbers back to company health and strategic direction.
Company Overview
Costco traces its origins to 1976, when Sol Price — a pioneer of warehouse club retailing — opened the first retail warehouse club in San Diego. That original location, called Price Club, primarily served small enterprises and was housed in a converted airplane hangar (Costco, 2019). It was not until 1983 that the first Costco warehouse opened, founded by James D. Sinegal and Jeffrey H. Brotman in Seattle. In 1993, the two companies merged to form Price/Costco, and six years later the corporation adopted its current name.
Today, Costco is headquartered in Issaquah, Washington, and operates not only in the United States but also in Spain, Australia, the United Kingdom, and Mexico. The corporation's business model centers on operating membership warehouses through its various subsidiaries (Yahoo Finance, 2019). Its merchandise includes dry and packaged foods, groceries, snack foods, candies, alcoholic and nonalcoholic beverages, cleaning supplies, appliances, electronics, health and beauty aids, hardware, garden and patio products, meat, bakery, deli and produce items, as well as apparel and small appliances (Yahoo Finance, 2019). Beyond retail, the company also operates pharmacies, gas stations, food courts, optical dispensing centers, and a travel business.
Craig Jelinek serves as Costco's CEO and president, while Hamilton E. James serves as its Chairman. The company's mission statement is "to continually provide our members with quality goods and services at the lowest possible prices" (Costco, 2019). The corporation does not maintain an official vision statement.
With regard to corporate values, Costco seeks to operate within established legal parameters, ensure its employees are well cared for, serve customers in the best possible way, build meaningful and mutually beneficial relationships with suppliers, and protect the interests of shareholders (Costco, 2019). In essence, the company's objectives revolve around keeping its operations relevant, resilient, and responsible — all in line with its code of ethics and mission statement. The company's full-time workforce numbers approximately 143,000 employees (Yahoo Finance, 2019). For the fiscal year ended September 2018, Costco reported total revenue of $141.5 billion and net income of $3.1 billion. Key competitors include Walmart and Home Depot.
References
Cain, A. (2018). Costco employees share the 7 best parts of working at the retail chain with a cult-like following. Retrieved from https://www.businessinsider.com/costco-jobs-best-part-2018-4?IR=T
Costco. (2019). About us. Retrieved from https://www.costco.com/about.html
Daft, R. L. (2017). Management (13th ed.). Mason, OH: Cengage Learning.
Waygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. Hoboken, NJ: John Wiley & Sons.
Yahoo Finance. (2019). Costco Wholesale Corporation (COST). Retrieved from
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