4/3/22, 4:14 PM A3

Question 4 Correct Mark 10.00 out of 10.00

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 13,876
Preopening expenses 68
Operating Income 4,480
Other income (expense)
Interest expense 159
Interest income and other, net (121)
Income before income taxes 4,442
Provision for income taxes 1,263
Net income including noncontrolling interests 3,179
Net income attributable to noncontrolling interests (45)
Net income attributable to Costco $3,134

 
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 $6,055 $4,546
Short-term investments 1,204 1,233
Receivables, net 1,669 1,432
Merchandise inventories 11,040 9,834
Other current assets 321 272
Total current assets 20,289 17,317
Net property and equipment 19,681 18,161
Other assets 860 869
Total assets $40,830 $36,347
Current liabilities
Accounts payable $11,237 $9,608
Accrued salaries and benefits 2,994 2,703
Accrued member rewards 1,057 961
Deferred membership fees 1,624 1,498
Other current liabilities 3,014 2,725
Total current liabilities 19,926 17,495
Long-term debt 6,487 6,573
Other liabilities 1,314 1,200
Total liabilities 27,727 25,268
Equity
Preferred stock, $0.01 par value: 0 0
Common stock, $0.01 par value: 4 4
Additional paid-in-capital 6,107 5,800
Accumulated other comprehensive loss (1,199) (1,014)
Retained earnings 7,887 5,988
Total Costco stockholders’ equity 12,799 10,778
Noncontrolling interests 304 301
Total equity 13,103 11,079
Total liabilities and equity $40,830 $36,347

In 2018, Costco’s return on equity (ROE) is 26.59% and its return on net operating assets (RNOA) is 26.52%. Assume that the combined federal
and state statutory tax rate is 22%.

a. Compute net nonoperating expense (NNE) and net operating profit after tax (NOPAT). Round to the nearest whole number, if applicable. 

2018 NNE  $ 30  million

2018 NOPAT  $ 3,209  million

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4/3/22, 4:14 PM A3

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

2018 NNO $ (772)  million

2017 NNO $ 794  million 

c. Compute financial leverage (FLEV). Round answer to four

decimal places. 

2018 FLEV 0.0009 

d. Compute NNEP and Spread. Round answers to two decimal places (example: 0.12345 = 12.35%).

2018 NNEP 272.73  %

2018 Spread (246.21)  %

e. Compute the noncontrolling interest ratio (NCI ratio).  Round answer to four

decimal places. 

2018 NCI Ratio 1.0111 

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

2018 ROE = 26.59  % = [ 26.52  %+( 0.0009  X (246.21)  %)] X 1.0111   

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