Analysis and Interpretation of Profitability | Costco Wholesale Corporation

Analysis and Interpretation of ProfitabilityBalance sheets and income statements for Costco Wholesale Corporation follow.

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.

 

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