You are the Chief Financial Officer (CFO) of Walmart. This afternoon you played golf with a member of the company’s board of directors. One of the board members enthusiastically described a recent article she had read in a leading management journal. This article noted several companies that had improved their stock price performance through effective working capital management, and the board member was intrigued. Even though Walmart was known for working capital management, she wondered if it could do even better. How was Walmart managing its working capital, and how does it compare to Costco, another company well known for working capital management?
Walmart is known for its working capital management and emphasis on low prices. The Walmart retail sell stuff that people need daily at a little cheaper price than its competitors making it the world's largest operating retail market. Even though Walmart has the power of squeezing profit-killing concession from suppliers, Costco will likely fare better than Walmart because of Costco's unique business model based on membership fees. Costco collects fees from its members and sells items in bulk at rock bottom prices. As a result, Costco's P/E ratio is lower compared to that of Walmart and also Costco's EPS is higher than that of Walmart.