Q: Calculate the Liquidity Ratios only for COSTCO for the most recent (newest) y
ID: 2530018 • Letter: Q
Question
Q:
Calculate the Liquidity Ratios only for COSTCO for the most recent (newest) year with a brief explanation of what each reveals to management
Please review the Income Statement and Balance Sheet Prepare the following analysis: 1) Calculate Horizontal (Trend) Analysis of the Income Statement and Balance Sheet 2) Calculate Vertical (Common Size) Analysis of the Income Statement and Balance Sheet 3)Calculate the Liquidity Ratios only for COSTCO for the most recent (newest) year with a brief explanation of what each reveals to management
Explanation / Answer
Horizontal analysis of income statement:
The net sales of the company has increased continuously over the last two years as the net sales of financial year ending on August 31, 2014 was $110212 which increased to $113666 in financial year ending on August 31, 2015 and further to $116073 in 2015-16. Similarly the membership fees have also increased year after in the last three years as can be seen from the income statement.
The operating income of the company in the financial year 2015-16 of $3672 is highest in the last three years. Income before taxes have also increase in 2015-16 with $3619 compare to $3197 of 2013-14 and $3604 of 2014-15. However, net income of the company has reduced in 2015-16 at $2350 compare to $2377 of 2014-15. Basic and diluted earnings per share both have reduced in 2015-16 at $5.36 and $5.33 respectively in 2015-16 compare to $5.41 and $5.37 respectively of 2014-15.
Vertical analysis of income statement:
The total operating income 2015-16 of the company has been $118719 with operating expenses of $115047. Thus, the operating income of the company for the year has been $3672. The income before taxes for the year 2015-16 is $3619.
Calculation of liquidity ratios:
Current ratio:
Current ratio is calculated to assess the ability of an organization to pay off its current liabilities by using its current assets only. It helps to assess the working capital sufficiency of an organization.
31st August, 2016
31st August, 2015
Total current assets
15218
16779
Total current liabilities
15575
16539
Current ratio (Current assets / Current liabilities)
0.977079
1.014511
Acid test ratio: It is even more liquid version with current assets less inventories are considered to assess the sufficiency to pay off the current liabilities from such liquid acid.
31st August, 2016
31st August, 2015
Total current assets less inventories
6249
7871
Total current liabilities
15575
16539
Current ratio (Current assets / Current liabilities)
0.40122
0.475905
31st August, 2016
31st August, 2015
Total current assets
15218
16779
Total current liabilities
15575
16539
Current ratio (Current assets / Current liabilities)
0.977079
1.014511
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