Costco Wholesale Corporation Case Study Essay

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Pages: 11

INTRODUCTION The Industrial Revolution reshaped the world and expedited how business was conducted through the use of railroads and steam engines. Department stores soon evolved after and revolutionized how shopping was done and centralized a variety of merchandise at one central location (Tayan, 2003). With the introduction of 20th century operational management strategies such as Just in Time (JIT) and Lean Manufacturing, companies had to alter its operational efficiency and the way it conducted its business in order to grow and stay competitive. Costco Wholesale Corporation entered the wholesale club industry in the early 1980s (Tayan, 2003). The idea behind a wholesale club was to maximize profits by minimizing operational costs …show more content…
Overall, Costco has managed its finances quite well and does not seem to be financial difficulties judged by the income statement and balance sheet. They have maintained their efficiency and operating margin in relations to growth and will most likely maintain sustainable growth.

Has its operational efficiency changed? The growth of Costco from the years 1997-2001 is very impressive. They have grown into a huge American company, which owns a big portion of the market share in their respective industry. However, if one looks pass growth numbers, they see that Costco’s corporate managers have not handled operational efficiency very well. The company allowed operational efficiency to decline as it grew. The main ratios that express its operating efficiency are: return on assets, return on equity, and asset turnover ratios. These three ratios paint a different picture and are very important ratios, which declined through its 5-year rapid growth rate. Return on Equity (ROE) for Costco is tracked over a 4-year period from 1998-2001 and within that period (ROE) started at 18.7% and declined down to 14.2%. This equates to a 24% decline on how profitable Costco’s equity is. Return on Assets (ROA) is also tracked over the same 4 –year period and declined from 16.66% to 8.4% down to 7.0%. Over that 4- year span, the company’s assets were not as profitable as it was before