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Running Head: A FINANCIAL ANALYSIS OF COSTCO 1 A Financial Analysis of Costco Julia C. Cook Webster University Basic Finance for Managers BUSN 5200 Lee Trovas May 10, 2018
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A FINANCIAL ANALYSIS OF COSTCO 2 A Financial Analysis of Costco U.S. and Global Economy Overview. The U.S. economy continues to recover from the recession of 2008 and 2009. Despite its slow recovery and challenges from both home and abroad, the U.S. economy remains the largest and most important in the world. It is dominated by services-oriented companies in areas such as technology, financial services, healthcare and retail (FocusEconomics, 2018). Additionally, several large U.S. corporations play a major role on the global stage, with more than a fifth of companies on the Fortune Global 500 coming from the United States (FocusEconomics, 2018). Recent key economic indicators point to a healthy outlook for the U.S. economy. Although the gross domestic product growth (GDP) rate fell to 2.3 percent during the first quarter of this year, it is expected to rise to 2.7 percent in 2018 (Amadeo, 2018). The unemployment rate fell to 3.9 percent this past quarter, the lowest since 2000. That rate is expected to fall to 3.6 percent by 2019. Additionally, consumer prices, as measured by the price index for personal consumption expenditures, increased 1.8 percent over the 12 months ending in February (Powell, 2018). The core inflation rate, which excludes the prices of energy and food and is typically a better indicator of future inflation, rose 1.6 percent over the same period (Powell, 2018). It is predicted to rise to no more than 1.9 percent in 2018, closely mirroring the Federal Reserve’s target inflation rate of 2 percent and allowing the Federal Reserve to raise rates to a more “normal” level (Amadeo, 2018). In a speech to the Economic Club of Chicago last month, Federal Reserve Chairman Jerome Powell spoke about reducing monetary policy support by instituting gradual increases in
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A FINANCIAL ANALYSIS OF COSTCO 3 the federal funds rate. The goal is to continue to aim for 2 percent inflation and a sustained economic expansion with a strong labor market over the next few years (Powell, 2018). In his speech, Mr. Powell also cited other signs of economic strength including steady income gains, rising household wealth, and elevated consumer confidence. These factors continue to support consumer spending, accounting for about two thirds of economic output (Powell, 2018). The economic outlook for 2018 is bright, with the anticipated benefits of President Trump’s tax cuts still to come. The economic environment for global retailers, on the other hand, continues to be challenging. The outlook includes slow economic growth in major developed countries, high levels of debt in emerging countries, deflation or low inflation in wealthy countries, a protectionist backlash against globalization, and troubled credit markets in some other countries (National Retail Federation, 2017).
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