Direct Computation of Nonoperating Return with Noncontrolling Interest

Balance sheets and income statements for Costco Wholesale Corporation follow.

Costco Wholesale Corporation
Consolidated Statements of Earnings
For Fiscal Years Ended ($ millions)	September 2, 2018
Total revenue	$141,576
Operating expenses
Merchandise costs	123,152
Selling, general and administrative	6,355
Preopening expenses	68
Operating Income	12,001
Other (income) expense
Interest expense	73
Interest income and other, net	(121)
Income before income taxes	12,049
Provision for income taxes	1,263
Net income including noncontrolling interests	10,786
Net income attributable to noncontrolling interests	(21)
Net income attributable to Costco	$10,765

Costco Wholesale Corporation
Consolidated Balance Sheets
($ millions, except par value and share data)	September 2, 2018	September 3, 2017
Current assets
Cash and cash equivalents	$2,773	$4,546
Short-term investments	1,204	1,233
Receivables, net	1,669	656
Merchandise inventories	11,040	9,834
Other current assets	147	272
Total current assets	16,833	16,541
Net property and equipment	19,681	18,161
Other assets	860	398
Total assets	$37,374	$35,100
Current liabilities
Accounts payable	$11,237	$9,608
Accrued salaries and benefits	1,371	1,238
Accrued member rewards	1,057	961
Deferred membership fees	744	1,498
Other current liabilities	3,014	1,248
Total current liabilities	17,423	14,553
Long-term debt	2,971	6,573
Other liabilities	1,314	1,200
Total liabilities	21,708	22,326
Equity
Preferred stock, $0.01 par value:	0	0
Common stock, $0.01 par value:	4	4
Additional paid-in-capital	8,835	7,495
Accumulated other comprehensive loss	(1,199)	(1,014)
Retained earnings	7,887	5,988
Total Costco stockholders equity	15,527	12,473
Noncontrolling interests	139	301
Total equity	15,666	12,774
Total liabilities and equity	$37,374	$35,100
Combined federal and state statutory tax rate	22.00%
ROE	76.89%
RNOA	76.16%

a. Compute net nonoperating expense (NNE) and net operating profit after tax (NOPAT).

	NNE
	Answer?

	NOPAT
	Answer?

b. Compute net nonoperating obligations (NNO) for 2018 and 2017.

	Year	NNO
	2018	Answer?
	2017	Answer?

c. Compute financial leverage (FLEV).

	Numerator	Denominator	FLEV
	Answer?	Answer?
	Answer?	Answer?

d. Compute NNEP and Spread.

	Numerator	Denominator	NNEP
	Answer?	Answer?
	Answer?	Answer?

	RNOA (given)	NNEP	Spread
	Answer?	Answer?

e. Compute the noncontrolling interest ratio (NCI ratio). `

	Numerator	Denominator	NCI ratio
	Answer?	Answer?

f. Confirm the relation: ROE = [RNOA + (FLEV Spread)] NCI ratio.

	Ratio	Number
	ROE (given)	Answer?
	RNOA (given)	Answer?
	FLEV	Answer?
	Spread	Answer?
	NCI ratio	Answer?
	ROE