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RESIDUAL ENTERPRISE INCOME

RESIDUAL ENTERPRISE INCOME. Discount, Variety Store - Costco Aileen Huang. Costco. Established in 1983 71,200 members 451 Warehouses/stores in U.S. Sales: $103m; Net income: $2m Competitors: Sam’s Club, BJ Wholesale Started same time, only three big wholesale clubs still in operation

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RESIDUAL ENTERPRISE INCOME

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  1. RESIDUAL ENTERPRISE INCOME Discount, Variety Store - Costco Aileen Huang

  2. Costco • Established in 1983 • 71,200 members • 451 Warehouses/stores in U.S. • Sales: $103m; Net income: $2m • Competitors: Sam’s Club, BJ Wholesale • Started same time, only three big wholesale clubs still in operation • Market share 67% Sam’s Club; 17% Costco

  3. Assumption • CAPM 9.60% based on Bloomberg • Growth rate • 2014-2018 5.6% • 2018-2013 4.00% • Perpetual growth rate 2.00% • EPM from sales 2.20% • EATO 10.2

  4. DCF Model • Enterprise value: $49,831

  5. Residual Enterprise Income • Calculation of 2025: make sure REI growth rate =2%

  6. Abnormal Enterprise Income Growth • EPAT1=EPAT2014; Discount factor2015 =1.1 • Calculation of 2024-2026: make sure agr growth rate=2%

  7. Comparison • Abnormal Enterprise Income Growth model • 94% based on forecast within horizon • Residual Enterprise Income model • 34% based on 2013 financial data • Long timespan

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