Analysis and Interpretation of Profitability Balance sheets and income statements for Costco Wholesale Corportation 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 andadministrative 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 2062 ($ millions) (b) Compute net operating assets (NOA) for 2013 and 2012. 2013 NOA = Answer 3431 ($ millions) 2012 NOA = Answer 0 ($ millions) (c) Compute Costcos 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 21.78 % 2013 NOPM = Answer 1.96 % 2013 NOAT = Answer 0 (d) Compute net nonoperating obligations (NNO) for 2013 and 2012. 2013 NNO = Answer -1126 ($ millions) 2012 NNO = Answer -3473 ($ 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 % (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.