Costco has achieved a high liquidity ratio and it averages more than 1.2 in the last 3 years. The reason is that Costco has been able to effectively utilize its current assets and has a highly efficient working capital. Another reason that Costco has achieved a much higher working capital when compared to Wal-Mart is because Costco uses lesser debt to finance its assets. It is safe to assume that Costco has achieved a better level of Liquidity when compared to Wal-Mart.
A company is more concerned about its ability to generate capital for its daily operations than any other of its business operations. Costco has maintained healthy financial leverage ratios and the company focused much less on acquiring debt. However, Wal-Mart has a considerably high percentage of debt/equity ratios as the company has focused on expanding its business operations and has thus adopted an aggressive business strategy.
Asset utilization and Market Value ratios
By analyzing the asset utilization and market value ratios, we can certainly evaluate how efficiently and effectively Costco has utilized its assets as this is the key in comparing the overall performance of both companies. When making the best out of their assets, Costco has achieved an average asset turnover from 2011-2013 of around 3.20 while Wal-Mart has achieved total asset turnover at an average of 2.40 in the last 3 years. Same goes for the inventory and receivable turnover as Costco has utilized its assets quite efficiently as compared to Wal-Mart because the company has been aggressive in its overall financial strategy. Even when analyzing the market and book value indicators, Costco’s EPS has been much higher when compared to Wal-Mart and this has constantly increased over the past few years. This has also resulted in a high Price-earnings ratio for the company from 2011-2013. This also means that the overall value of Costco’s stock has increased when compared to Wal-Mart.