Analysis and Interpretation of Liquidity and SolvencyBalance sheets and income statements for Costco Wholesale Corporation follow.Costco Wholesale CorporationConsolidated Statements of EarningsFor Fiscal Years Ended ($ millions)September 2, 2018Total revenue$141,576Operating expenses Merchandise costs123,152Selling, general and administrative13,876Preopening expenses68Operating Income4,480Other income (expense) Interest expense159Interest income and other, net(121)Income before income taxes4,442Provision for income taxes1,263Net income including noncontrolling interests3,179Net income attributable to noncontrolling interests(45)Net income attributable to Costco$3,134 Costco Wholesale CorporationConsolidated Balance Sheets($ millions, except par value and share data)September 2, 2018September 3, 2017Current assets Cash and cash equivalents$6,055$4,546Short-term investments1,2041,233Receivables, net1,6691,432Merchandise inventories11,0409,834Other current assets321272Total current assets20,28917,317Net property and equipment19,68118,161Other assets860869Total assets$40,830$36,347Current liabilities Accounts payable$11,237$9,608Accrued salaries and benefits2,9942,703Accrued member rewards1,057961Deferred membership fees1,6241,498Other current liabilities3,0142,725Total current liabilities19,92617,495Long-term debt6,4876,573Other liabilities1,3141,200Total liabilities27,72725,268Equity Preferred stock, $0.01 par value:00Common stock, $0.01 par value:44Additional paid-in-capital6,1075,800Accumulated other comprehensive loss(1,199)(1,014)Retained earnings7,8875,988Total Costco stockholders’ equity12,79910,778Noncontrolling interests304301Total equity13,10311,079Total liabilities and equity$40,830$36,347(a) Compute Costco’s current ratio and quick ratio for 2018 and 2017. (Round answers two decimal places.)2018 current ratio = Answer2017 current ratio = Answer2018 quick ratio = Answer2017 quick ratio = Answer(b) Compute Costco’s times interest earned and its liabilities-to-equity ratios for 2018 and 2017. In 2017, Costco reported earnings before interest and tax (EBIT) of $4,111 million and interest expense of $134 million. (Round answers two decimal places.)2018 times interest earned = Answer2017 times interest earned = Answer2018 liabilities-to-equity = Answer2017 liabilities-to-equity = Answer(c) Summarize your findings about the company’s liquidity and solvency. Do you have any concerns about Costco’s ability to meet its debt obligations?Costco's liabilities-to-equity ratio decreased thus its solvency has declined.Costco's times interest earned is high thus there is concern for Costco's solvency.Costco's quick and current ratios slightly increased therefore its liquidity has declined.Costco's times interest earned ratio is high thus solvency is not a concern for Costco.

The current ratio and quick ratio represents the liquidity of the company. whereas,…

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FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Analysis and Interpretation of Liquidity and Solvency
Balance sheets and income statements for Costco Wholesale Corporation follow.

Costco Wholesale Corporation
Consolidated Statements of Earnings
For Fiscal Years Ended ($ millions)	September 2, 2018
Total revenue	$141,576
Operating expenses
Merchandise costs	123,152
Selling, general and administrative	13,876
Preopening expenses	68
Operating Income	4,480
Other income (expense)
Interest expense	159
Interest income and other, net	(121)
Income before income taxes	4,442
Provision for income taxes	1,263
Net income including noncontrolling interests	3,179
Net income attributable to noncontrolling interests	(45)
Net income attributable to Costco	$3,134

Costco Wholesale Corporation
Consolidated Balance Sheets
($ millions, except par value and share data)	September 2, 2018	September 3, 2017
Current assets
Cash and cash equivalents	$6,055	$4,546
Short-term investments	1,204	1,233
Receivables, net	1,669	1,432
Merchandise inventories	11,040	9,834
Other current assets	321	272
Total current assets	20,289	17,317
Net property and equipment	19,681	18,161
Other assets	860	869
Total assets	$40,830	$36,347
Current liabilities
Accounts payable	$11,237	$9,608
Accrued salaries and benefits	2,994	2,703
Accrued member rewards	1,057	961
Deferred membership fees	1,624	1,498
Other current liabilities	3,014	2,725
Total current liabilities	19,926	17,495
Long-term debt	6,487	6,573
Other liabilities	1,314	1,200
Total liabilities	27,727	25,268
Equity
Preferred stock, $0.01 par value:	0	0
Common stock, $0.01 par value:	4	4
Additional paid-in-capital	6,107	5,800
Accumulated other comprehensive loss	(1,199)	(1,014)
Retained earnings	7,887	5,988
Total Costco stockholders’ equity	12,799	10,778
Noncontrolling interests	304	301
Total equity	13,103	11,079
Total liabilities and equity	$40,830	$36,347

(a) Compute Costco’s current ratio and quick ratio for 2018 and 2017. (Round answers two decimal places.)

2018 current ratio = Answer
2017 current ratio = Answer

2018 quick ratio = Answer
2017 quick ratio = Answer

(b) Compute Costco’s times interest earned and its liabilities-to-equity ratios for 2018 and 2017. In 2017, Costco reported earnings before interest and tax (EBIT) of $4,111 million and interest expense of $134 million. (Round answers two decimal places.)

2018 times interest earned = Answer
2017 times interest earned = Answer

2018 liabilities-to-equity = Answer
2017 liabilities-to-equity = Answer

(c) Summarize your findings about the company’s liquidity and solvency. Do you have any concerns about Costco’s ability to meet its debt obligations?

Costco's liabilities-to-equity ratio decreased thus its solvency has declined.

Costco's times interest earned is high thus there is concern for Costco's solvency.

Costco's quick and current ratios slightly increased therefore its liquidity has declined.

Costco's times interest earned ratio is high thus solvency is not a concern for Costco.

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