Question

Analysis and Interpretation of Profitability Balance sheets and income statements for Costco Wholesale Corportation follow Consolidated Statements of Earnings September 1, September 2, August 28 For Fiscal Years Ended ($ millions) 2013 2012 2011 Revenue 97,062 $87,048 1,867 Net Sales $102,870 2,286 105,156 Membership fees 2,075 Total revenue 99,137 88,915 Operating expenses Merchandise costs Selling, general and administrative Preopening expenses 91,948 10,104 51 3,053 86,823 9,518 37 2,759 77,739 8,691 46 2,439 Operating Income Other income (expense) (99) 97 3,051 990 2,061 (95) 103 2,767 1,000 Interest expense 60 2,383 841 Interest income and other, net Income before income taxes Provision for income taxes Net income including noncontrolling interests Net income attributable to noncontrolling interests 1,767 (58) 1,709 1,542 (80) 1,462 (22) Net income attributable to Costco 2,039

Please help me answer these correctly with solutions. Thank you!

Answer 1

a.. NOPAT:

Operating income 2013 = 3053

Tax = 37%

Therefore, NOPAT = Operating income * (1-Tax rate) = 3053* (1-0.37) = 1923.39 milliions

b. Net Operating Assets = Total Assets - All liabilities - All financial assets + All financial liabilities

For 2013:

Total assets = $30283, All liabilities = $19271, Financial assets = cash and cash equivalent + short term investments = 4644 + 1480 = 6124, Financial liabilities = Long term debt, excluding current portion = 4998

Therefore NOA for 2013 = $11366 millions

For 2012, NOA = $9045 millions

c. 2013 RNOA = NOPAT / NOA = 1923.39 / 11366 = 16.9%

2013 NOPM = NOPAT / Total revenues = 1923.39 / 105156 = 1.8%

2013 NOAT = Total revenue / average NOA = 105156 / ((11366+9045)/2) = 105156 / 10205.5 = 10.30

d. Net nonoperating obligations = Non operating liabilities - Non operating assets

For 2013, Non operating liabilities = Financial liabilities = Long term debt, excluding current portion = 4998

Non operating assets = cash and cash equivalent + short term investments = 6124

NNO = 4998 - 6124 = - $1126 millions

For 2012, NNO = 1381 - (3528+1326) = $3473 millions

e. Return on equity = Net income / shareholder's equity average

For Costco, Net income 2013 excluding non controlling interest = 2039

Total Costco shareholder's equity = 10833

2013 ROE = 2039 / 10833 = 18.88%

Including non controlling interest = 2013 ROE = Total income including non controlling interest / Total equity = 2061 / 11012 = 18.71%

f. Non operating 2013 ROE = (Total income including non controlling interest - NOPAT) / Total equity = (2061 - 1923.39) / 11012 = 1.25%

g. ROE > RNOA implies Costco is able to borrow money to fund operating assets that yield a return greater than its cost of debt