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 $8,561$

Preopening expenses $68$

Operating Income $9,795$

Other $($income$)$ expense

Interest expense $98$

Interest income and other, net $(121)$

Income before income taxes $9,818$

Provision for income taxes $1,263$

Net income including noncontrolling interests $8,555$

Net income attributable to noncontrolling interests $(28)$

Net income attributable to Costco $$8,527$

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 $$3,736$ $$4,546$

Short$-$term investments $1,2041,233$

Receivables, net $1,669884$

Merchandise inventories $11,0409,834$

Other current assets $198272$

Total current assets $17,84716,769$

Net property and equipment $19,68118,161$

Other assets $860536$

Total assets $$38,388$ $$35,466$

Current liabilities

Accounts payable $$11,237$ $$9,608$

Accrued salaries and benefits $1,8471,668$

Accrued member rewards $1,057961$

Deferred membership fees $1,0021,498$

Other current liabilities $3,0141,681$

Total current liabilities $18,15715,416$

Long$-$term debt $4,0026,573$

Other liabilities $1,3141,200$

Total liabilities $23,47323,189$

Equity

Preferred stock, $$0\mathrm{.}01$ par value: $00$

Common stock, $$0\mathrm{.}01$ par value: $44$

Additional paid$-$in$-$capital $8,0356,998$

Accumulated other comprehensive loss $(1,199)(1,014)$

Retained earnings $7,8875,988$

Total Costco stockholders$$ equity $14,72711,976$

Noncontrolling interests $188301$

Total equity $14,91512,277$

Total liabilities and equity $$38,388$ $$35,466$

Combined federal and state statutory tax rate $22\mathrm{.}00\%$

ROE $63\mathrm{.}87\%$

RNOA $63\mathrm{.}13\%$

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 $\backslash$times Spread$)]\backslash$times NCI ratio.

Ratio Number

ROE $($given$)$

Answer

RNOA $($given$)$

Answer

FLEV

Answer

Spread

Answer

NCI ratio

Answer

ROE

$***$ROE may be different due to rounding