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Last update on 2024-06-06

Costco Wholesale (COST) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Analyze Costco's 2023 Piotroski F-Score of 6/9 to assess the company's financial health, focusing on profitability, liquidity, and operating efficiency.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 6

We're running Costco Wholesale (COST) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
0
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
1
Current Ratio is growing?
1
Number of shares not diluted?
0
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
0

Costco Wholesale scored a 6 out of 9 on the Piotroski F-Score, indicating a strong but not exceptional financial position. They showed consistent positive net income and cash flow from operations over 20 years, a decline in leverage, and an increasing current ratio, suggesting good profitability and liquidity. However, slight declines in Return on Assets and Asset Turnover, as well as a slight increase in the number of outstanding shares, showed areas needing improvement.

Insights for Value Investors Seeking Stable Income

With its Piotroski score of 6, Costco Wholesale exhibits solid financial health and appears to be a mostly strong investment. Despite some areas for improvement like ROA and Asset Turnover, the company's positive trends in net income, cash flow, and debt management make it worth considering as a potential investment. Investors should, however, monitor the areas with declining metrics to ensure they don't trend negatively over time.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Costco Wholesale (COST)

Company has a positive net income?

Net Income signifies a company's profitability, with a positive value indicating profit and a negative value indicating loss.

Historical Net Income of Costco Wholesale (COST)

In 2023, Costco Wholesale reported a net income of $6.292 billion, which is positive. Over the last 20 years, Costco has consistently reported a positive net income, starting from $721 million in 2003 and steadily increasing each year. This shows a strong and stable growth pattern, signifying the company's ability to continually generate profit. This is a positive indicator for investors, fulfilling this specific Piotroski criterion and adding 1 point.

Company has a positive cash flow?

Cash Flow from Operations (CFO) evaluates a company's ability to generate liquid capital to support ongoing operations without relying on external financing.

Historical Operating Cash Flow of Costco Wholesale (COST)

Costco Wholesale's cash flow from operations in 2023 is $11.068 billion, which is positive. Over the last 20 years, CFO has shown a consistent upward trend from $1.51 billion in 2003 to $11.068 billion in 2023. This increase in CFO is robust and indicates strong operational efficiency and profitability, thereby justifying the allocation of 1 point for this criterion.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) is a pivotal metric measuring how efficiently a company utilizes its assets to generate earnings.

Historical change in Return on Assets (ROA) of Costco Wholesale (COST)

For 2023, Costco Wholesale (COST) recorded a ROA of 0.0945 compared to 0.0947 in 2022. This decrement of 0.0002 indicates a slight decrease in the company's asset efficiency, which results in assigning 0 points for this criterion. Over the last two decades, COST's ROA has consistently been below the industry median, shedding light on possible areas for improvement. However, the company's robust operating cash flow, notably reaching $11.06 billion in 2023, underlines strong operational performance, partially offsetting the concerns related to ROA in the broader evaluation context.

Operating Cashflow are higher than Netincome?

Operating cash flow compared to net income helps to judge a company's positive cash flow and its capacity to generate cash. A consistent higher operating cash flow argues for a firm's financial robustness.

Historical accruals of Costco Wholesale (COST)

In 2023, Costco's operating cash flow stands at $11.068 billion, significantly higher than its net income of $6.292 billion. The 2023 figures indicate a healthy trend as the business is generating robust cash flow compared to its reported earnings. Historical data since 2003 also suggest consistent positive operating cash flow, with notable growth reflecting effective internal cash generation mechanisms. Hence, for the year 2023, we assign 1 point under this criterion acknowledging Costco's strong cash flow management.

Liquidity of Costco Wholesale (COST)

Leverage is declining?

This criterion compares the change in financial leverage over two consecutive years, signifying a company's debt dependency.

Historical leverage of Costco Wholesale (COST)

In 2022, Costco Wholesale (COST) had a leverage of 0.1397, while in 2023 this figure decreased to 0.1131. Lower leverage indicates a reduced dependency on debt, making the company financially healthier. Thus, 1 point is added here. Notably, over the past 20 years, this is the second-lowest leverage rate, the lowest being 0.1129 in 2019, demonstrating a continually prudential approach concerning debt usage.

Current Ratio is growing?

The Current Ratio criterion evaluates a company's ability to pay its short-term obligations with short-term assets, and an increase indicates improved liquidity.

Historical Current Ratio of Costco Wholesale (COST)

Costco Wholesale's (COST) Current Ratio increased from 1.0218 in 2022 to 1.0684 in 2023. This positive trend suggests an improvement in the company's liquidity position, making it better equipped to meet its short-term obligations, thus earning 1 point. Historically, however, Costco's Current Ratio has fluctuated and often remained below the industry median, indicating it generally operates with relatively tight liquidity compared to industry norms. This trend is encouraging given that 2023's figure surpasses both 2021 and 2022's numbers, although significant improvement is still needed to match industry standards.

Number of shares not diluted?

Change in shares outstanding evaluates whether the company has repurchased its shares, potentially indicating management's confidence in the firm's future.

Historical outstanding shares of Costco Wholesale (COST)

In 2023, Costco's outstanding shares increased from 443,651,000 in 2022 to 443,854,000. Despite this minor rise, reflecting a trend over the last two decades would be more telling. Over 20 years, shares have oscillated. While the slight increase of 0.046% in the recent year results in 0 points for this criterion in the Piotroski analysis. The value is relatively stable, suggesting minimal dilution.

Operating of Costco Wholesale (COST)

Cross Margin is growing?

Gross Margin is a measure of a company's financial health and business model. A higher Gross Margin indicates better control over production costs relative to revenue generated, which is crucial for profitability.

Historical gross margin of Costco Wholesale (COST)

In 2023, Costco's Gross Margin increased to 0.1226 from 0.1215 in 2022. This improvement, though seemingly minor, signifies that Costco has become slightly more efficient in managing its production costs and pricing strategies compared to the previous year. For instance, a 0.0011 increase in Gross Margin, while appearing small, represents a continued focus on cost control and pricing power. Comparatively, the industry's median Gross Margin was 0.3123 in 2023, considerably higher than Costco's. Despite Costco’s comparatively lower figure, the marginal improvement in Costco's Gross Margin can be attributed to strategic efforts amidst a competitive retail environment. Therefore, for this criterion, Costco earns a point.

Asset Turnover Ratio is growing?

The change in Asset Turnover will determine if the company is generating more revenue per dollar of assets annually.

Historical asset turnover ratio of Costco Wholesale (COST)

Comparing the 2022 Asset Turnover ratio of 3.6773 with the 2023 ratio of 3.6391 reveals a slight decrease. Despite this minor decline, both figures are remarkably high, indicating efficient asset utilization overall. Costco's Asset Turnover trend over the last two decades shows consistent strong performance. Although the change from 2022 to 2023 results in a score of 0 for this Piotroski criterion, Costco's historical data underscores its efficiency and operational robustness in the retail sector.


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