Costco and Walmart Inventory and Liabilities

Focus on Inventory

The industry average for inventory compared to assets is 25%. Costco, and Walmart both fall close to the industry. Both Sears, and Bed Bath & Beyond have about 10% more then the industry, and Canadian Tire is 15% below the industry. The preferred costing method for the department stores we choose is weighted average. With Costco using Lower of Cost or Market for their primary locations, and using First in, First out for their foreign locations. Walmart's costing method is First in, First out for both their primary and foreign locations. Weighted average gives you the most realistic net income, but First in, First out gives you the most up to date inventory cost. Gross profit is an indicator of a company's ability to sell inventory at a profit. The industry average for gross profit is 26%. Bed Bath & Beyond makes the most profit from sales with 15% higher then the industry, and Sears follows with 12% higher then the industry. Walmart is about the same as the industry, and Costco, and Canadian Tire are both below by about 15%. Inventory turnover indicates how fast inventory can be sold. It's industry average stands at 7.7 times per year, or every 47 days. Costco sells their inventory every 30 days, Walmart 41 days, Canadian Tire 42 days, Bed Bath & Beyond 81 days, and Sears 96 days. The low ratio for Sears and Bed Bath & Beyond makes up for their high gross profit percentage. If they sold their inventory as fast as Costco, Walmart, or Canadian Tire they would generate a very high net income.

Focus on Liabilities

The current ratio shows others if the company is able to pay current liabilities with current assets. The industry average for current ratio is 1.8, the higher the ratio the better. Costco, and Sears are both about the same as the industry. Walmart falls a little below, but are still able to cover liabilities with their assets. Bed Bath & Beyond, and Canadian Tire both have high current ratios at 3.1, and 2.4. The debt ratio shows how much of the company is financed by debt, it also measures ability to pay current and long term debt. The industry average stands at 0.51, and a lower debt ratio is preferred. Costco, Walmart, and Canadian Tire are all about the same as the industry. Sears is a little higher at .60, and Bed Bath & Beyond is lower at .29 which would be the best at this time. Out of the five of our companies none of them decided to issue notes or bonds in the last fiscal year. The times interest earned measures ability to pay interest expense with operating income. The industry average is 15.5. Bed Bath & Beyond does not have interest expense because they do not have any long term debt. Sears, and Walmart are both close to the industry average. Canadian Tire falls way below the industry at 8.54. Where Costco is way above at 25.05,