Introduction
The modern retail industry is one of the most developed spheres, offering numerous opportunities for companies operating within it. It is a mature and highly competitive environment, especially in the strong and developed economies of North America and Europe (Deloitte, 2023). In 2021, the global retail market generated around $26 trillion in sales (Deloitte, 2023). Moreover, according to recent forecasts, this number will reach over $30 trillion by 2024 (Deloitte, 2023). This means that the industry recovered from the crisis caused by the COVID-19 pandemic and started to grow again (Deloitte, 2023).
The North American region is characterized by the struggle between several giant companies operating within the retail sector. These include Costco, Walmart, and its subsidiary Sam’s Club, The Home Depot, and Best Buy. They impact the development of the market and trends emerging within it.
Thus, Costco is one of the leaders in the retail sphere. In 2022, it managed to generate $5,844 billion in net income, which is a 16.72% increase compared to 2021 (Costco Wholesale, 2022). The company operates in 14 countries and creates jobs for around 304,000 employees globally (Costco Wholesale, 2022). It owns a chain of membership warehouses and big-box retail stores, providing clients with an extensive choice of various products, such as meat, organic food, groceries, non-food items, and fresh products (Costco Wholesale, 2022).
The company remains stable and popular with its clients and focuses on cultivating its positive image. Moreover, its current annual report admits stable income growth, meaning the corporation has a stable position in the countries where it operates (Costco Wholesale, 2022). These factors mean that Costco can be an attractive option for investors hoping for returns.
Sam’s Club is another strong player in the retail market and one of Costco’s central competitors. Currently, it is a subsidiary of Walmart, meaning it is governed and managed by a big international corporation operating in various regions. In 2022, Sam’s Club demonstrated a 15,1% net sales growth and 11.3% membership income growth, which also makes it one of the attractive options for investors (Walmart Inc., 2022).
Furthermore, Sam’s Club recovered from the aftermath of the COVID-19 pandemic and entered a phase of stable growth. The company offers a wide range of items, such as food and non-food products, to meet diverse clients’ demands (Walmart Inc., 2022). It also engaged in renovation activities to attract a new generation of clients (Walmart Inc., 2022). In such a way, Sam’s Club, a part of Walmart, is a strong competitor in the industry.
Ability to Pay Current Liabilities
Analyzing Sam’s Club and Costco as the major actors in the retail market, it is vital to evaluate the financial aspect of their functioning. At the same time, because Sam’s Club is Walmart’s subsidiary, its financial data is closely linked to Walmart’s. Using the data from companies’ 2022 financial reports, it is possible to determine the critical showings. For instance, the current and debt ratios can be compared to analyze the companies’ ability to pay current liabilities. Thus, Costco’s current ratio is 1,02, while Sam’s Club has 0,99; Costco’s debt ratio is 0,1, while Sam’s Club has 0,15.
Comparing the current ratios, it is possible to admit that Costco is doing better than Sam’s Club at the moment. The showing indicates the company’s ability to pay short-term obligations within one year. The current ratio helps investors realize how the company can maximize current assets and pay its current debt (Fridson & Alvarez, 2022). Too high current ratios might also indicate poor company management. Thus, Costco’s ratio of 1,02 is satisfactory and means that the firm can pay its current liabilities, while Sam’s Club’s ratio of 0,99 signalizes specific liquidity issues.
The debt ratio analysis can also help to determine the company’s health. Following the reports, in 2022, Costco had a 0,1 debt ratio (10%), and Sam’s Club had 0,15 (15%). Debt ratios lower than 100% show that companies have more assets than debts at the moment (Fridson & Alvarez, 2022). In such a way, both indicators can be considered healthy, meaning that the companies continue to evolve.
Thus, using the financial indicators, it is possible to conclude that Costco is better at the moment because of the current ratio, indicating the more effective management of available assets and resources. Potential investors might be more interested in interacting with Costco and hoping for higher and more stable returns. However, Sam’s Club is also successful if compared with other companies operating in the sector.
Profits
The company’s ability to generate profits and succeed in the long term is also critical for analyzing its performance. Thus, Costco’s return on assets (ROA) comprises 9,1%, while Sam’s Club has 5,6%; the return on equity (ROE) for Costco is 28,31%, and for Sam’s Club is 16,7%. These profitability indicator ratios show how much profit corporations can generate using their assets (Fridson & Alvarez, 2022).
In general, a return on assets higher than 5% is viewed as a good indicator, meaning both companies managed to succeed. Thus, Costco shows better results as its ROA is 9,1%, which is preferable. As for ROE, a ratio from 15% to 20% is considered a good indicator, meaning both companies are profitable and generate profits stably. However, Costco has a higher measure, which shows its advantageous position.
The fixed asset turnover ratio is another important indicator of the firms’ health. It shows the company’s ability to generate sales from fixed assets over time (Stobierski, 2020). Higher ratios prove the management’s ability to use this resource more effectively and contribute to the company’s evolution. Thus, Costco’s fixed asset turnover ratio is 9,25%, while Sam’s Club has a ratio of 7,9%. In general, both companies have positive measures, meaning that they use their assets effectively and can generate profits over a prolonged period.
Altogether, the major performance indicators prove that Sam’s Club and Costco are powerful companies operating within the retail industry. They can manage the available assets effectively and ensure that shareholders and potential investors will benefit from the cooperation. However, the numbers also show that Costco was more successful in recovering from the pandemic crisis and managing its assets. It has higher ROA and ROE measures, proving the corporation was better at generating profit during the analyzed period. Furthermore, it has more practical strategies for using available resources wisely. For this reason, it might be more attractive to potential investors.
Ability to Satisfy Stockholders
Furthermore, similar to most giant international corporations, Costco is a publicly traded company with its own stockholders. At the same time, Sam’s Club is a subsidiary of Walmart, meaning it is not a publicly traded company; however, Walmart has its stockholders, meaning that its data can be used for comparison. Thus, the dividend payout ratio shows the amount of money paid by the company to its shareholders or stockholders after taxation (Fridson & Alvarez, 2022). This measure comprises $0,26 for Costco and $0,11 for Sam’s Club (Walmart). This means that corporations might ensure that all shares are supported with the payments mentioned above.
The price-to-earnings (P/E) ratio is another essential indicator necessary for analyzing the firm’s performance. It demonstrates the amount of money the market is ready to offer for a stock, considering past or future income and earnings (Fridson & Alvarez, 2022). For Costco, the P/E ratio is 36,75, while for Sam’s Club (Walmart), it is 28,1. In most cases, investors consider a lower P/E ratio a better option, meaning that Sam’s Club can be more attractive to potential partners (Fridson & Alvarez, 2022). However, the given measure is rather comparative, while the higher indicators might show less volatile company stocks, which is a preferable option for numerous value investors or potential partners.
The analysis of the company’s cash flow and investment valuation ratios shows that both Costco and Sam’s Club can satisfy their leading stockholders. The companies pay for all shares, meaning there is no reason for anxiety or other concerns. At the same time, P/E ratios are also sufficient and indicate the companies’ health and ability to evolve.
Using the given findings, Costco is more successful in paying for its shares. At the same time, Sam’s Club or Walmart can be a more attractive option for new investors looking for safe income-generating options. Moreover, both firms remain strong actors dominating the retail market and attracting attention from potential investors.
Better Investment Option
The analysis of financial statements performed above might help to make an informed decision about the better investment option. Currently, Costco is a preferable choice for potential investors. First of all, the company has a higher current ratio, which is an indicator of effective management.
Costco correctly realizes the necessity to exploit available resources and existing assets to create the basis for the company’s further development. For this reason, it is possible to predict the further stable development of the company, which is critical for investors and their decision to start cooperating with the company. It can also guarantee the safety of investment and returns.
Moreover, Costco’s ROA is higher than Sam’s Club’s, which proves that the firm is better at generating profit during the compared period. The COVID-19 pandemic became a severe challenge for retailers because of the restrictions on interactions; however, due to its e-commerce department and focus on delivery, Costco managed to recover faster, as its ROA and ROE measures are higher compared to Sam’s Club. It might be one of the critical factors impacting potential investors’ decision-making and their desire to start interacting with a particular organization.
Finally, the company’s ability to satisfy stockholders is another critical measure. The most crucial factor that should be considered is that Costco is a publicly traded company, meaning its stock can be purchased. Thus, Sam’s Club is not an independent firm; it is a subsidiary of Walmart, one of the giants operating in the retail market. This means that Sam’s Club’s ability to meet its stockholders’ demands depends on the performance of the leading company.
Although its P/E ratio might seem more attractive for some value investors, Costco’s payments for shares are higher, which is a critical factor that might impact potential clients’ decision-making. Altogether, using data from financial statements, it is possible to select Costco as a better option for potential investment. The choice is justified by stability, better performance, and the ability to generate higher profit during the investigated period.
Non-Financial Criteria to Consider
When choosing between two attractive investment options, it is also critical to consider non-financial criteria that might impact the companies’ development in the future. First of all, corporations’ focus on sustainability and environmental concerns should be considered. Nowadays, these factors are essential components of a brand’s reputation, which also impacts clients’ loyalty and readiness to cooperate with a particular brand.
For instance, Costco transitions to a low-carbon business model, which is highly important for the planet and the preservation of desired sustainability levels (Costco Wholesale, 2022). Sam’s Club focuses on reducing plastic packaging and using recyclable materials (Walmart Inc., 2022). This means both companies are sustainable and can be attractive to clients.
Employees’ satisfaction and commitment levels are also critical as they indicate the health of the company and its ability to evolve. Thus, Costco is considered one of the companies with the perfect approaches to managing its employees (Nassauer, 2018). It offers bonuses, rewards, and opportunities for personal and professional development (Costco Wholesale, 2022).
It is also highly rated for the compensation and benefits provided to its workers. Sam’s Club uses a similar model to appraise its employees and create the necessary culture. However, it can be less effective in this aspect, as evidenced by the reduced popularity of vacancies offered by the company compared to other retailers. This aspect might impact the brand and its evolution in the future.
Finally, the shopping experience offered by the brands and customer service should be taken into account. These factors might directly impact sales and clients’ attitudes to the brand. Thus, Costco shoppers view the firm’s stores as more open and better designed, with higher ceilings and light, especially compared to Sam’s Club stores (Nassauer, 2018). It impacts people’s desire to revisit these places and make purchases.
Additionally, Sam’s Club experienced the closures of a significant number of its stores because of the change in the company’s policy (Nassauer, 2018). For this reason, considering the factors mentioned above, it is possible to select Costco as a more attractive option. It manages both non-financial and financial aspects better than its competitors.
Conclusion
Altogether, analyzing companies’ financial indicators is vital for understanding their performance and choosing a better investment option. Thus, Costco has better showings in most compared aspects, such as current ratio, ROA and ROE, P/E, and debt ratio. This means that it can be more attractive to potential partners and investors.
Moreover, the non-financial aspects of the company’s work are also better compared to Sam’s Club. In such a way, both firms are strong actors in the retail market and hold leading positions. However, the analysis shows that Costco might be more attractive, considering information from its financial statements.
References
Costco Wholesale. (2022). 2022 annual report. Web.
Deloitte. (2023). 2023 retail industry outlook. Web.
Fridson, M., & Alvarez, F. (2022). Financial statement analysis (5th ed.). Wiley.
Nassauer, S. (2018). By shrinking, can Sam’s Club keep up with Costco?The Wall Street Journal. Web.
Stobierski, T. (2020). The beginner’s guide to reading & understanding financial statements. Harvard Business School. Web.
Walmart Inc. (2022). 2022 annual report. Web.