BUS800: Costco Inc. Financial Performance Analysis Report

This report provides a detailed financial analysis of Costco Inc., focusing on its performance, strategic challenges, and opportunities for improvement. The analysis includes a PESTEL analysis, an examination of dominant economic features, and an assessment of competitive forces. The report also explores alternative strategies for enhancing Costco's operational efficiency, such as implementing innovative strategies, product differentiation, and the balanced scorecard approach. Recommendations are provided to address financial concerns, including cost control, maintaining liquidity, and reorganizing the capital structure. The report concludes with a bibliography of sources used in the analysis and appendices containing financial data and supporting documentation. The report is prepared for a Strategic Management course and aims to evaluate Costco's current position and offer insights for future strategic decisions.

Running head: FINANCE
Finance
Name of the Student:
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Author’s Note

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Table of Contents
Introduction....................................................................................................................2
Analysis..........................................................................................................................2
Alternatives....................................................................................................................3
Recommendations..........................................................................................................4
Bibliography...................................................................................................................5
Appendix........................................................................................................................6
PESTEL Analysis...........................................................................................................6
Dominant Economic features analysis.........................................................................11

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Introduction
The main purpose of the assessment is to conduct a thorough analysis of the financial
performance of the business and strategies which are formulated by the business for
enhancing the operational status of the business. Costco Inc is recognised as one of the
American Multinational company which operates numerous warehouses for wholesale
operations and it is also recognised as one of the leading businesses in the retail sector as well
(C-17). The company is known for its organic products and food products which are quite
popular among the customers of the business. The business strategy which is followed by the
company is to offer products at a lower price and the product should also be of perfect
quality. The report would be going into details regarding the issues which are faced by the
company and how the same is affecting the operations of the business. In addition to this, the
analysis would also present recommendations and measures which can be implemented so
that further improvements can be brought about in the operational process of the business (C-
19). The alternative strategies which can be implemented by the business would be
containing pros and cons for the same so that proper decisions can be taken in this regard.
Analysis
The business of Costco Inc faces significant challenges from the changes which are
taking place in the market. The taste and preferences of the consumers are changing and
therefore appropriate changes are required to be brought about in the operational process of
the business so that it can appropriately meet the demands of the customers. One of the main
concerns which the business is facing is the high competitive pressures which the company is
facing in the market. The high competition is mainly from established companies such as
Target Inc and Walmart in the retail sectors and Sam’s Club and BJ's Wholesale Club which
are close competitors of the company in the Wholesale operations (C-34). The management
of Costco Inc needs to formulate proper strategies so that efficiency and flexibility is
maintained in the operational process of the business.
The business of Sam’s Club also aims to maintain a low profit margin and therefore
the price for the products gets automatically reduced resulting in more sales for the business.
In this manner, the business is able to enhance the sales of the business and expand its
operations further (C-35). It is clear that the key strategies which are implemented in the
business of Costco Inc are also followed by Sam’s Club and therefore it is anticipated that the
competition pressure in the market would be high. These strategies intensify the competition
and thereby enhance the rivalry in the market. The management of Costco Inc appropriately
tries to expand the operations so that the level of competition can be managed in an effective
manner. The management of Costco Inc needs to formulate counter measures so that more
demand for its products so that more revenue can be generated. The analysis of financial data
which is shown in the appendix section shows that the business has been able to maintain its
sales but considering future trends, the business needs to consider the level of competition in
the market so that more revenue can be generated from the activities of the business (C-21).
In order to properly estimate the financial health of the business, key financial ratios are
computed and the same is shown in the appendix section with proper identification regarding
the key areas of performance for the business.
The corporate and business strategies which are formulated by the business
systematically aim to enhance the operations of the business and thereby achieve growth in
the market. The business also wants to lower the costs of operations so that goods products
are available to the customers at a reasonable price [E-5 (S-1.3.2)]. The product which is
offered needs to be of highest quality and thereby maintain the sales of the business.

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Alternatives
The strategies which can be implemented by the business of Costco Inc for ensuring
that the business is able to achieve operational efficiency are discussed below with respective
pros and cons associated with the strategies:
Implementing Innovative Strategies: One of the strategies which needs to be the area of
focus for the business of Costco Inc is bringing in innovative products which can further
capture the interest of the consumers and attract more of the same[E-6(T-1.4.1)]. This
strategy would also help the business to gain competitive edge over its competitors and
ensure that proper profits are made by the business so that operational efficiency is achieved
by the business in the market. The corporate strategies of the business effectively incorporate
continuous development as one of the objectives of the business and this should also include
innovative strategies so that more profits can be generated from the operations.
Pros
 The advantage of innovative policies is that it would bring about efficiency and
improve the internal structure and products of the company
 The innovative strategies would also provide a competitive edge in the market and
help in differentiating the products offered[E- 10 (2.4.1)].
Cons
 The main disadvantage of such a setting is that it is a time and resource consuming
process which can be frustrating for the business.
 The costs factor also needs to be considered as innovative approach requires trial and
errors and costs can increase for the business.
Product Differentiation and Diversification: This is another strategy which is very
effective in case of the issue which is being faced by Costco Inc. The management should
ensure that products which are offered are slightly differentiated so that more revenue can be
generated and people get attracted towards the uniqueness of the products [E-2 (P-1.1.1)].
The management of the company also needs to focus on diversification strategy which would
allow the business to offer more products and therefore ensure that the revenue is generated
form different lines of operations. This is a very effective strategy for facing competition in
the market and such a strategy helps in meeting the demands of different class of consumers.
Pros
 The advantage of this strategy is that it can attract different class of customers and
therefore the risks of loss making are reduced.
 The business can also penetrate new markets with the help of diversification strategy
and thereby expand the sales of the business.
Cons
 The costs factor is one of the main limitations for this strategy as this strategy
enhances the costs of business.
 There is always a chance that one of line of product might not be successful and
therefore the same proves to be unproductive in nature.
Balance Scorecard Approach: This is a tool which is used in strategic planning and the
process effectively sets KPIs which needs to be achieved by the management so that the
entity is able to achieve operational success in the market. The process has four legs which

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are quite effective in planning and ensure that the long term goals and objectives set by the
senior officials are met. The balance scorecard appropriate is quite effective in case there are
lot of competitors in the market.
Pros
 The technique helps the business in not only planning but also implementing key
strategies in the operational process of the business.
 The process of Balance scorecard can be managed appropriately by the managers and
the same also allow the business to supervise performance of the business.
Cons
 The business needs to properly control the tool and ensure that the same is effectively
utilized for planning the activities of the business.
 The balanced scorecard approach is considered to be complex in nature and therefore
it is quite difficult to handle.
Recommendations
The recommendations which can be suggested to the business of Costco Inc for
making improvements in the operational structure and also for the slight issues which are
recognised in the appendix section are appropriately listed below:
 The management of the company needs to implement one of the three alternatives
measures which are suggested above for ensuring that the business is able to face
competition in an appropriate manner [E- 4(E-1.3)]. The business can implement the
measure considering the long term goals and nature of the operations of the business.
 The management of the company needs to control the costs of operations as the same
is still high. If the management is able to control the costs of operations, then the
profit margin for the business can be further expanded.
 The business also needs to maintain the liquidity status of the business so that it can
properly meet the current obligations of the business [E-22 (F-1.1.2)]. The working
capital for 2017 for the company is shown to be negative which is a serious matter of
concern and therefore proper strategies needs to be implemented.
 The business also needs to reorganize the capital structure of the company and ensure
that the operational efficiency and risks are properly managed [E-22 (F-1.1.2]. The
most probable option for the business would be to maintain the equity level and
minimize the debts of the business so that proper structure is maintained.
 The business also needs to digitalize the operational process so that its range can be
enhanced and more and more customers can serve.

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