[MUSIC] So in this session, we'll talk about the annual report of Costco. So it is also called a form 10-k, and I already ask you to have a look at this annual report. We will use Costco's annual report to practice financial ratios. Here is how to read an annual report. First, let's look at the letter to shareholders from its CEO. And there is a business overview and you can understand the overall business of this company. Then, go to the end of the report and have a look at the financial statements. Using those two financial statements to understand the details of these statements. And then go to the session on management's discussion and analysis of financial condition and results of operations. If you are interested in going deeper, then you could visit the section for risk factors and legal proceedings. Then let's look at the business of the Costco and wholesale club concept. Costco offers low prices on limited selection of products. And they achieve this by high sales volumes and rapid inventory turnover. In order to shop at Costco, you need to be a member, so you need to buy a membership. And Costco has operating efficiencies by volume purchasing, efficient distribution, and reduced handling of merchandise in warehouse facilities. So this shows the inside of Costco shops. And they stack up products as received from their vendors to reduce the cost of display. Let’s look at history of wholesale clubs. The first wholesale club was Price Club. And it opened in San Diego, California in 1975. Price Club expanded in California and in the West of the United States. Costco was founded in 1983 in Seattle, Washington. And Costco expanded in the Pacific Northwest and Canada. These two companies merged in 1993, creating Price/Costco, later simplified to Costco. Let's look at the competitors of Costco. There are direct competitors like Sam's Club, run by Walmart, and BJ's in the East Coast of the United States. And Costco is the largest warehouse club, as shown in this graph. And there are retailers like Walmart and Target. And there's a strong emerging competitor on-line retailer like Amazon. Here is an income statement of Costco for the fiscal year of 2016. Its revenues $118 billion including net sales of 116. And membership fees are about $2.6 billion. And its net income is $2 billion and $350 million. Here we compare the stock price of Costco and Walmart. As of October 2016, Costco's stock price is $151, and for Walmart $69. The total number of shares is 441 million shares for Costco and 3.2 billion shares for Walmart. So we can calculate the total company value or market cap which is $67 billion for Costco and $222 billion for Walmart. EPS is the net profit per share. And that's $5.33 for Costco and $4.57 for Walmart. The P/E ratio is obtain by dividing the stock price with EPS and that is 28.3 for Costco and 15.1 for Walmart. If a company's P/E ratio is high that means that its stock is very popular in the stock market. And also the investors look the future of this company very brightly. And you probably are curious why there is a big difference between the P/E ratios of Costco and Walmart. So let's find out why P/E ratios of Costco and Walmart are different.