Memo

Memo

Executive Summary

The aim of this study is to know whether profitability of Costco Wholesale Corp get affected due to change in liquidity, debt structure and inventory turnover of the company. For the study data of Costco Wholesale Corp is taken from 1984 to 2013 to analyze the profitability structure of the company. The study reveals that profitability of company is not associated with liquidity and debt structure; however, it has positive direct relationship with inventory turnover of Costco Wholesale.

Problem Statement

The purpose of this study is to know whether the profitability of Costco Wholesale Corp show increase or not. This question is important and crucial for the Costco Wholesale Corp which is involved in the retail and wholesale of consumer goods and products which will help the Costco Wholesale Corp in making the products according to the demands of the customers.

Hypothesis

H O 1: The profitability of Costco Wholesale Corp increases due to increase in liquidity.

H O 2: The profitability of Costco Wholesale Corp increases due to increase in debt structure of company.

H O 3: The profitability of Costco Wholesale Corp increases due to increase in inventory turnover.

Study Variables

The independent variables of the study are quick ratio, total debt to equity and inventory turnover; however, the dependent variable is return on assets of Costco Wholesale Corp.

Data

For the study, data is extracted from the financial statements of Costco Wholesale Corp from 1984 to 2013. This research study that is, whether net income of Costco Wholesale Corp get affected due to change in sales of the company will be based on the secondary data, to analyze the impact of change in sales which is often guided by consumer demand, on the net income of company.

Statistical Evidence

Statistics

ROA

Quick Ratio

Total Debt to Equity

Inventory Turnover

N

Valid

30

30

30

30

Missing

0

0

0

0

Mean

7.4790

.4480

.3503

14.9877

Median

6.4600

.4350

.2850

12.3000

Mode

.00a

.22a

.26

12.10

Std. Deviation

3.11591

.26164

.21128

4.32388

Variance

9.709

.068

.045

18.696

Range

14.21

.99

.74

13.52

a. Multiple modes exist. The smallest value is shown

The table shows that the data comprises of total 30 observations. The result of the above table is showing the mean of the dependent variable that is return on assets is 7.479. In addition to this, the highest mean of independent variable, inventory turnover is 14.98 with the median and mode of $ 12; besides it, with the standard deviation of 4.32, besides it, the median value of the return on assets is 6.46 and with the standard deviation of 3.11.

Correlations

ROA

Quick Ratio

Total Debt to Equity

Inventory Turnover

Pearson Correlation

ROA

1.000

.575

.053

.826

Quick Ratio

.575

1.000

-.156

.510

Total Debt to Equity

.053

-.156

1.000

.315

Inventory Turnover

.826

.510

.315

1.000

Sig. (1-tailed)

ROA

.

.000

.391

.000

Quick Ratio

.000

.

.206

.002

Total Debt to Equity

.391

.206

.

.045

Inventory Turnover

.000

.002

.045

.

N

ROA

30

30

30

30

Quick Ratio

30

30

30

30

Total Debt to Equity

30

30

30

30

Inventory Turnover

30

30

30

30

The above result for the data shows that there is correlation of return on assets with quick ratio and inventory turnover; however, total debt to equity is not correlated. In addition to this, the Pearson value for the correlation coefficient shows that it is in positive for quick ratio and inventory turnover as which represents that there is positive correlation of return on assets with quick ratio and inventory turnover of Costco Wholesale Corp.

Model Summaryb

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

Change Statistics

R Square Change

F Change

df1

df2

Sig. F Change

1

.860a

.740

.710

1.67745

.740

24.687

3

26

.000

a. Predictors: (Constant), Inventory Turnover, Total Debt to Equity, Quick ...