Asset Utilization

Asset utilization ratio analysis of a company used for the group project

Costco has been a strong company for many years. Asset utilization/ efficiency ratio is important for evaluating this company because this ratio is frequently used to compare a company’s efficiency over time. In accounting, asset is an economic resource, which means that anything that is capable of being owned or controlled to produce value has positive value to the company, is considered an asset. The more efficient Costco is with asset management, it shows how well they use their assets to generate revenue. A gain in revenue does not mean they are making profit, but part of the company’s goal is to maximize profit. The main assets we use to evaluate asset utilization are account receivable, inventory, and fixed asset, cost of goods sold, sales and total asset.

Target has been looking for ways to expand. Target’s value proposition is “Expect More. Pay Less.”. This has always been their proposition and it seems to work. Target seems to meet most of their consumer’s expectation and provide the best for them. Target is a competitive retail market to Wal-Mart and Costco mainly because they carry better brands than Wal-Mart. This strategy markets the brand from Wal-Mart. The market is competitive and one wrong move will haunt them. For example, Target’s 5% reward program off purchases at Target locations and on their online website builds million and there are new customers who have not shop yet at Target. Target expanded and builds more City stores and opened 125-135 stores in Canada and they are working slowly to expand to operate 200 or more stores over time. The one recent issue with credit card security has affected many of their sales. There was a...

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...ory ratio, which means that their strong sales and this indicate better liquidity. Costco’s day sales in inventory is much lower which means they take less time to convert their inventory into sales and Target’s days sales in inventory is higher which means they take longer to generate their inventory into sales. Costco also does better in collecting accounts receivable because their days sales in receivable is much lower and target’s days sales in receivable is nearly 10 times higher. Cash means a lot to a company and being able to collect cash faster than their competitor gives them more option. Costco’s asset turnover is higher which means how many times Costco sells or turnover its asset and this is a sign of high efficiency. Costco is known for being efficient internally and externally. Costco takes the upper hand is utilizing their assets to generate sales.