P3-47. A nal ysi s and Interpretatio n o f Profitability Bal ance sheet s and i ncome st atement s for Costco W ho lesal e Corpor atio n follow.

COSTCO WHOLESALE CORPORATION Consolldated Statement of Income For Fiscal Years Ended($ millions) September 2, 2018 Total reven ue...... ................. . .. .. .. . .. .. . .. . .. $141,576 Operating expenses Merchandise costs .................... ..... .. .. ..... .

Selling , general an d administrative ...................... .

Preopening expenses ............................. . .. .

Operating income ............... . .. . .................. .

Other (income) expense Interest expense .......................... . ......... .

Interest income and other, net ................. . ....... .

Income be fore income taxes ................... .. ....... .

Provision for income taxes ..................... ......... .

Net income including noncontrolling interests ............... .

Net income attributab le to noncontrolling interests ........ ... . .

Net income attributable to Costco ........................ .

COSTCO WHOLESALE CORPORATION Consolldated Balance Sheets S millions, except par value and share data September 2, 2018 Current assets Cash and cash equivalents ................. .

Short-term investments .................... .

Receivables, net .... ... . ................. .

Merchandise inventories .......... .. .. ..... .

Other current assets . .. .. .. . . .... . ........ .

Total current assets ...................... .

Net property and equipment ......... ......... .

Other assets ......... .. .. ................. .

Total asset s ........ . ............ . .. .. ... .

Current liabilities Accounts payable ............... . .. .. .... .

Accrued sala ries and benefits ......... .. .... .

Accrued membe r rewards .............. . .. . .

Deferred membership fees ................. .

Other current liabilities .................... .

Total current liabilities .... . .. . .. ........... .

Long-term debt ............................ .

Other liabilities .......... . ... . ............. .

Total liabilities ............................. .

$ 6,055 1,204 1,669 11 ,040 321 20,289 19,681 860

$40,830

$1 1,237 2,994 1,057 1,624 3,014 19,926 6,487 1,314 27,727

$

123,152 13,876 68 4 ,480 159

(121)

4,442 1,263 3, 179

(45)

3, 134 September 3, 2017

$ 4,546 1,233 1,432 9,834 272 17 ,317 18 ,161 869

$36 ,347

$ 9,608 2,703 96 1 1,498 2,725 17,495 6,573 1,200 25,268 Continued, $ millions, except par value Equity Preferred stock $0.01 par value ..... • • .. • .. .. • .
Common stock $0.01 par value . . ...•... . .. .. ..
Additional paid-in capital. ....... . ... . .. . .... • .
Accumulated other comprehensive loss . .. . ....•.
Retained earnings ... .. ... . ...... . .. . .. . ... .
Total Costco stockholders' equity . ... • .. .. .. .. ..
Noncontrolling interests ........ . .. •• .. • .... • .
Total equity ....... . .......... . .. •. .. . .. ... .
Total liabilities and equity . ...... . . .•• .. • . ... • .
Required September 2, 2018 0 4 6,107 (1,199)
7,887 12,799 304 13,103 $40,830 September 3, 2017 0 4 5,800 (1,014)
5,988 10,778 301 11 ,079 $36,347

a. Compute net operating profit after tax (NOPAT) for 201 8. Assume that the combined federal and state statutory tax rate is 22%.

b. Compute net operating assets (NOA) for 2018 and 2017.

c. Compute and disaggregate Costco's RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 201 8; confirm that RNOA = NOPM x NOAT.

d. Compute net nonoperating obligations (NNO) for 2018 and 2017. Confirm the relation: NOA = NNO + Total equity.

e. Compute return on equity (ROE) for 201 8.
f Infer the nonoperating return component of ROE for 20 18.
g. Comment on the di fference between ROE and RNOA. What does this relation suggest about Costco's use of equity capital?