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

COSTCO WHOLESALE CORPORATION Consolidated Statements of Income For Fiscal Years Ended ($ millions)

Aug. 28, 2016 Aug. 30, 2015 Aug. 31, 2014 Revenue Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $116,073 $113,666 $110,212 Membership fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,646 2,533 2,428 Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,719 116,199 112,640 Operating expenses Merchandise costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,901 101,065 98,458 Selling, general and administrative. . . . . . . . . . . . . . . . . . . . . . . 12,068 11,445 10,899 Preopening expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 65 63 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,672 3,624 3,220 Other income (expense)

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (133) (124) (113)

Interest income and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 80 104 90 Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,619 3,604 3,197 Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,243 1,195 1,109 Net income including noncontrolling interests . . . . . . . . . . . . . . 2,376 2,409 2,088 Net income attributable to noncontrolling interests . . . . . . . . . . (26) (32) (30)

Net income attributable to Costco . . . . . . . . . . . . . . . . . . . . . . . $ 2,350 $ 2,377 $ 2,058 COSTCO WHOLESALE CORPORATION Consolidated Balance Sheets

$ millions, except par value and share data Aug. 28, 2016 Aug. 30, 2015 Assets Current assets Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,379 $ 4,801 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,350 1,618 Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,252 1,224 Merchandise inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,969 8,908 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 228 Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,218 16,779 Property and equipment Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,395 4,961 Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,994 12,618 Equipment and fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,077 5,274 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701 811 Gross property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,167 23,664 Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . (9,124) (8,263)

Net property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,043 15,401 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 902 837 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,163 $33,017

$ millions, except par value and share data Aug. 28, 2016 Aug. 30, 2015 Liabilities and equity Current liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,612 $ 9,011 Current portion long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100 1,283 Accrued salaries and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,629 2,468 Accrued member rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 869 813 Deferred membership fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,362 1,269 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,003 1,695 Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,575 16,539 Long-term debt, excluding current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,061 4,852 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,195 783 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,831 22,174 Equity Preferred stock, $0.005 par value:
100,000,000 shares authorized; no shares issued and outstanding. . . . . . . — —
Common stock, $0.005 par value: 900,000,000 shares authorized;
437,524,000 and 437,952,000 shares issued and outstanding . . . . . . . . . . 2 2 Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,490 5,218 Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,099) (1,121)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,686 6,518 Total Costco stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,079 10,617 Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 226 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,332 10,843 Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,163 $33,017 Required

a. Compute net operating profit after tax (NOPAT) for 2016. Assume that the combined federal and state statutory tax rate is 37%.

b. Compute net operating assets (NOA) for 2016 and 2015.

c. Compute and disaggregate Costco’s RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2016; confirm that RNOA ???? NOPM ???? NOAT.

d. Compute net nonoperating obligations (NNO) for 2016 and 2015. Confirm the relation: NOA ???? NNO 1 Total equity.

e. Compute return on equity (ROE) for 2016.

f. Infer the nonoperating return component of ROE for 2016.
????. Comment on the difference between ROE and RNOA. What does this relation suggest about Costco’s use of equity capital?