Discovering Inventory Challenges in Walmart & Costco

By Using Enterprise Analysis Tool

Akshay Molke

SCM/ASCP Associate Consultant

Rapidflow Inc

Enterprise Breakdown based on Revenue & Detailed Assets

Walmart

Walmart reports a lower Cost of Goods Sold (COGS) at $74.9 billion, suggesting efficiency in managing direct production costs.

However, the company incurs higher Selling, General, and Administrative Expenses (SG&A) at $20.57 billion, indicating elevated day-to-day operational costs.

Walmart's Income Tax Expense stands at $0.83 billion, slightly lower than Costco.

The Net Income for Walmart is $2.39 billion, showcasing profitability.

In terms of liquidity, Walmart holds $6.03 billion in Cash and Cash Equivalents.

Net Receivables are reported at $3.38 billion, and the Inventory is valued at $23.08 billion.

Walmart's Property, Plant, and Equipment amount to $46 billion, and it holds $11.85 billion in Goodwill. Additionally, other assets are valued at $9.67 billion.

Costco

In contrast, Costco reports a higher COGS at $87.85 billion, indicating comparatively higher direct production costs.

However, the company manages to keep SG&A Expenses lower at $8.71 billion, signifying efficiency in day-to-day operational expenses.

The Income Tax Expense for Costco is slightly higher at $0.85 billion.

Costco's Net Income is $2.57 billion, slightly surpassing Walmart.

In terms of liquidity, Costco holds $15.9 billion in Cash and Cash Equivalents and has $1.32 billion in Short-Term Investments.

Net Receivables are reported at $3.49 billion, and Inventory is higher at $27.91 billion.

Costco's Property, Plant, and Equipment amount to $42.73 billion.

Other Assets for Costco are valued at $8.65 billion.

Enterprise Comparison

Enterprise Comparison based on Size & Efficiency

Revenue and Profitability

1. Total Revenue:
   - Walmart: $572.754 billion
   - Costco: $226.954 billion
   - Walmart's revenue significantly surpasses Costco's, indicating Walmart's larger scale of operations.

2. Gross Profit:
   - Walmart: $143.754 billion
   - Costco: $27.572 billion
   - Walmart has a higher gross profit, reflecting a larger margin between sales and the cost of goods sold.

3. Net Income:
   - Walmart: $13.673 billion
   - Costco: $5.844 billion
   - Walmart's net income is substantially higher, indicating greater profitability after considering all expenses.

Operating Performance

4. Operating Income or Loss:
   - Walmart: $25.942 billion
   - Costco: $7.793 billion
   - Walmart again outperforms Costco in operating income, reflecting its ability to generate profits from its core operations.

5. Profit before Tax:
   - Walmart: $18.696 billion
   - Costco: $7.840 billion
   - Walmart's profit before tax is higher, indicating stronger pre-tax profitability.

Efficiency and Operational Metrics

6. Asset Turnover Days:
   - Walmart: 156.04 days
   - Costco: 103.19 days
   - Costco has a shorter asset turnover period, suggesting better efficiency in utilizing assets to generate revenue.

7. Inventory Days:
   - Walmart: 48.08 days
   - Costco: 32.78 days
   - Costco has a shorter inventory holding period, indicating faster inventory turnover.

8. Cash Conversion Cycle:
   - Walmart: -16.56 days
   - Costco: -7.81 days
   - Both companies have negative cash conversion cycles, but Walmart's is more negative, indicating a shorter time between spending cash on inventory and receiving cash from sales.

9. Receivables Days/Payable Days:
   - Both companies have a similar ratio (0.08), indicating a balanced approach to managing receivables and payables.

10. Sales General Admin Cost/Total Revenue:
   - Walmart: 0.21 (21%)
   - Costco: 0.09 (9%)
   - Costco has a lower ratio, suggesting more efficient management of selling, general, and administrative costs relative to total revenue.

Summary

• Walmart significantly surpasses Costco in total revenue, gross profit, net income, and operating income.

• Costco demonstrates efficiency with shorter asset turnover days, inventory days, and a negative cash conversion cycle.

• Both companies maintain a balanced approach to receivables and payables, but Costco is more efficient in managing selling, general, and administrative costs relative to total revenue.