Analysis and Interpretation of Profitability
Balance sheets and income statements for Costco Wholesale Corporation follow.
|
Consolidated Statements of Earnings |
|||
| For Fiscal Years Ended ($ millions) | September 1, 2013 | September 2, 2012 | August 28, 2011 |
| Revenue | |||
| Net Sales | $102,870 | $97,062 | $87,048 |
| Membership fees | 2,286 | 2,075 | 1,867 |
| Total revenue | 105,156 | 99,137 | 88,915 |
| Operating expenses | |||
| Merchandise costs | 91,948 | 86,823 | 77,739 |
| Selling, general and administrative | 10,104 | 9,518 | 8,691 |
| Preopening expenses | 51 | 37 | 46 |
| Operating Income | 3,053 | 2,759 | 2,439 |
| Other income (expense) | |||
| Interest expense | (99) | (95) | (116) |
| Interest income and other, net | 97 | 103 | 60 |
| Income before income taxes | 3,051 | 2,767 | 2,383 |
| Provision for income taxes | 990 | 1,000 | 841 |
| Net income including noncontrolling interests | 2,061 | 1,767 | 1,542 |
| Net income attributable to noncontrolling interests | (22) | (58) | (80) |
| Net income attributable to Costco | $ 2,039 | $ 1,709 | $ 1,462 |
|
Consolidated Balance Sheets |
||
| ($ millions, except par value and share data) | September 1, 2013 | September 2, 2012 |
| Assets | ||
| Current assets | ||
| Cash and cash equivalents | $ 4,644 | $ 3,528 |
| Short-term investments | 1,480 | 1,326 |
| Receivables, net | 1,201 | 1,026 |
| Merchandise inventories | 7,894 | 7,096 |
| Deferred income taxes and other current assets | 621 | 550 |
| Total current assets | 15,840 | 13,526 |
| Property and equipment | ||
| Land | 4,409 | 4,032 |
| Buildings and improvements | 11,556 | 10,879 |
| Equipment and fixtures | 4,472 | 4,261 |
| Construction in progress | 585 | 374 |
| 21,022 | 19,546 | |
| Less accumulated depreciation and amortization | (7,141) | (6,585) |
| Net property and equipment | 13,881 | 12,961 |
| Other assets | 562 | 653 |
| Total assets | $ 30,283 | $ 27,140 |
| Liabilities and equity | ||
| Current liabilities | ||
| Accounts payable | $ 7,872 | $ 7,303 |
| Accrued salaries and benefits | 2,037 | 1,832 |
| Accrued member rewards | 710 | 661 |
| Accrued sales and other taxes | 382 | 397 |
| Deferred membership fees | 1,167 | 1,101 |
| Other current liabilities | 1,089 | 966 |
| Total current liabilities | 13,257 | 12,260 |
| Long-term debt, excluding current portion | 4,998 | 1,381 |
| Deferred income taxes and other liabilities | 1,016 | 981 |
| Total liabilities | 19,271 | 14,622 |
| Equity | ||
| Preferred stock, $0.005 par value: | ||
| 100,000,000 shares authorized; no shares issued and outstanding | 0 | 0 |
| Common stock, $0.005 par value: | ||
| 900,000,000 shares authorized; | ||
| 436,839,000 and 432,350,000 shares issued and outstanding | 2 | 2 |
| Additional paid-in-capital | 4,670 | 4,369 |
| Accumulated other comprehensive (loss) income | (122) | 156 |
| Retained earnings | 6,283 | 7,834 |
| Total Costco stockholders’ equity | 10,833 | 12,361 |
| Noncontrolling interests | 179 | 157 |
| Total equity | 11,012 | 12,518 |
| Total liabilities and equity | $ 30,283 | $ 27,140 |
HINT: For Sales use “Total revenues” for your computations, when applicable.
(a) Compute net operating profit after tax (NOPAT) for 2013. Assume that the combined federal and state statutory tax rate is 37%. (Round to the nearest whole number.)
2013 NOPAT = Answer 2099 ($ millions)
(b) Compute net operating assets (NOA) for 2013 and 2012.
2013 NOA = Answer 9886 ($ millions)
2012 NOA = Answer 9045 ($ millions)
(c) Compute Costco’s RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2013. (Do not round until final answer. Round two decimal places. Do not use NOPM x NOAT to calculate RNOA)
2013 RNOA = Answer 22.18%
2013 NOPM = Answer 1.996%
2013 NOAT = Answer 11.11
(d) Compute net nonoperating obligations (NNO) for 2013 and 2012.
2013 NNO = Answer (-1126) ($ millions)
2012 NNO = Answer (-3476) ($ millions)
(e) Compute return on equity (ROE) for 2013. (Do not round until final answer. Round answer two decimal places)
2013 ROE = Answer 17.58%
(f) Infer the nonoperating return component of ROE for 2013. (Use answers from above to calculate. Round two decimal places.)
Answer = -19.55 %
(g) What does the relation between ROE and RNOA suggest about Costco’s use of equity capital?
ROE < RNOA implies that Costco’s equity has grown faster than its NOA.
ROE > RNOA implies that Costco has taken on too much financial leverage.
ROE > RNOA implies that Costco is able to borrow money to fund operating assets that yield a return greater than its cost of debt.
ROE < RNOA implies that Costco is holding significant levels of nonoperating assets that are not earning as big of a return as its operating assets.