Analysis and Interpretation of Profitability Balance sheets and income statements for Costco Wholesale Corporation follow. Costco Wholesale Corporation Consolidated Statements of Earnings For Fiscal Years Ended ($ millions) August 28, 2016 August 30, 2015 August 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 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 income 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 $2,058 78 Costco Wholesale Corporation Consolidated Balance Sheets ($ millions, except par value and share data) August 28, 2016 August 30, 2015 $3,379 1,350 1,252 $4,801 1,618 1,224 8,908 228 16,779 8,969 268 15,218 4,961 Assets Current assets Cash and cash equivalents Short-term investments Receivables, net Merchandise inventories Deferred income taxes and other current assets Total current assets Property and equipment Land Buildings and improvements Equipment and fixtures Construction in progress Gross property and equipment Less accumulated depreciation and amortization Net property and equipment Other assets Total assets Liabilities and equity Current liabilities Accounts payable Current portion long-term debt Accrued salaries and benefits Accrued member rewards Deferred membership fees Other current liabilities Total current liabilities mendinant natin 5,395 13,994 6,077 701 26,167 (9,124) 17,043 902 $33,163 12,618 5,274 811 23,664 (8,263) 15,401 837 $33,017 $7,612 $1,100 2,629 869 1,362 2,003 15,575 $9,011 $1,283 2,468 813 1,269 1,695 16,539 4,061 1,195 20,831 4,852 783 22,174 Long-term debt, excluding current portion Other liabilities Total liabilities 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 Additional paid-in-capital Accumulated other comprehensive loss Retained earnings Total Costco stockholders' equity Noncontrolling interests Total equity Total liabilities and equity 2 2 5,490 (1,099) 7,686 12,079 253 12,332 $33,163 5,218 (1,121) 6,518 10,617 226 10,843 $33,017 HINT: For Sales use "Total revenues for your computations, when applicable (al Compute net operating profit after tax (NOPAT) for 2016. Assume that the combined federal and state statutory tax rate is 37. Round to the nearest whole number 2016 NOPAT = (5 millions) (b) Compute net operating assets (NOA) for 2016 and 2015 2016 NOA- 15 millions) 2015 NOA 15 millions c) Compute Costco's RNOA, net operating profit margin INOPM and net operating asset turnover (NOAT for 2016. Do not round unternal answer. Round two decimal places. Do not use NOPMX NOAT DO calculate RNCA) 2016 RNOA 2016 NOPM- 2016 NOAT- (d) Compute net nonoperating obligations (NNO) for 2016 and 2015 2016 NNO- (5 millions) 2015 NNO- (5 millions (e) Compute return on equity (ROE) for 2016. (Do not round until final answer. Round answer two decimal places) 2016 ROE (f) Infer the nonoperating return component of ROE for 2016. (Use answers from above to calculate. Round two decimal places.) (8) What does the relation between ROE and RNOA suggest about Costco's use of equity capital? ROE > RNOA implies that Costco's equity has grown faster than its NOA ROERNOA implies that Costco has taken on too much financial leverage. ROE > RNOA implies that Costco is able to borrow money to fund operating assets that yield a return greater than its cost of debt. ROE > RNOA implies that Costco increased its financial leverage during the period. Analysis and Interpretation of Profitability Balance sheets and income statements for Costco Wholesale Corporation follow. Costco Wholesale Corporation Consolidated Statements of Earnings For Fiscal Years Ended ($ millions) August 28, 2016 August 30, 2015 August 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 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 income 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 $2,058 78 Costco Wholesale Corporation Consolidated Balance Sheets ($ millions, except par value and share data) August 28, 2016 August 30, 2015 $3,379 1,350 1,252 $4,801 1,618 1,224 8,908 228 16,779 8,969 268 15,218 4,961 Assets Current assets Cash and cash equivalents Short-term investments Receivables, net Merchandise inventories Deferred income taxes and other current assets Total current assets Property and equipment Land Buildings and improvements Equipment and fixtures Construction in progress Gross property and equipment Less accumulated depreciation and amortization Net property and equipment Other assets Total assets Liabilities and equity Current liabilities Accounts payable Current portion long-term debt Accrued salaries and benefits Accrued member rewards Deferred membership fees Other current liabilities Total current liabilities mendinant natin 5,395 13,994 6,077 701 26,167 (9,124) 17,043 902 $33,163 12,618 5,274 811 23,664 (8,263) 15,401 837 $33,017 $7,612 $1,100 2,629 869 1,362 2,003 15,575 $9,011 $1,283 2,468 813 1,269 1,695 16,539 4,061 1,195 20,831 4,852 783 22,174 Long-term debt, excluding current portion Other liabilities Total liabilities 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 Additional paid-in-capital Accumulated other comprehensive loss Retained earnings Total Costco stockholders' equity Noncontrolling interests Total equity Total liabilities and equity 2 2 5,490 (1,099) 7,686 12,079 253 12,332 $33,163 5,218 (1,121) 6,518 10,617 226 10,843 $33,017 HINT: For Sales use "Total revenues for your computations, when applicable (al Compute net operating profit after tax (NOPAT) for 2016. Assume that the combined federal and state statutory tax rate is 37. Round to the nearest whole number 2016 NOPAT = (5 millions) (b) Compute net operating assets (NOA) for 2016 and 2015 2016 NOA- 15 millions) 2015 NOA 15 millions c) Compute Costco's RNOA, net operating profit margin INOPM and net operating asset turnover (NOAT for 2016. Do not round unternal answer. Round two decimal places. Do not use NOPMX NOAT DO calculate RNCA) 2016 RNOA 2016 NOPM- 2016 NOAT- (d) Compute net nonoperating obligations (NNO) for 2016 and 2015 2016 NNO- (5 millions) 2015 NNO- (5 millions (e) Compute return on equity (ROE) for 2016. (Do not round until final answer. Round answer two decimal places) 2016 ROE (f) Infer the nonoperating return component of ROE for 2016. (Use answers from above to calculate. Round two decimal places.) (8) 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 ROERNOA 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 increased its financial leverage during the period