Question

What is the financial health of Costco Wholesales using 2 ratios in each category:

LIQUIDITY
CAPITAL STRUCTURE
EARNINGS
What did those ratios tell you (what do they measure)?

Can you tell if the ratio is good or bad (what else might you need to look at or compare it to)?

Answer 1

Liquidity ratio are those ratio which helps to determine the ability of company to payoff its short term liabilities.It contains two ratios which are current ratio and quick ratio. It can be calculated using the division of current asset and current liability. where such ratio is greater than 1. It can be said that it is good for company. As it gone down 1 , it can be said company liquidity position has been gone down which indicates no better finance.

Capital Structure: While defining capital structure of company it contains two one equity fund and other debt fund. Company having more debt can be considered as more risky. The capital structure ratio contains debt-equity ratio, debt ratio, equity ratio and other. Hence where such ratio is increased, it indicates company is more risky which is not better for finance of company.

Earnings: It contains ratios which are return on equity, gross profit margin ratio and net profit margin ratio.

All these ratio indicate whether company is profitable or not. As such ratio increased, it can be said that company have good profit. Hence , increased in such ratio is better for financial performance.