In: Accounting
Compute and Analyze Measures for DuPont Disaggregation
Analysis
Balance sheets and income statements for Costco Wholesale
Corporation follow.
Consolidated Statements of Earnings | |||
---|---|---|---|
For Fiscal Years Ended ($ millions) | September 1, 2013 | September 2, 2012 | August 28, 2011 |
Revenue | |||
Net Sales | $102,870 | $97,062 | $87,048 |
Membership fees | 2,286 | 2,075 | 1,867 |
Total revenue | 105,156 | 99,137 | 88,915 |
Operating expenses | |||
Merchandise costs | 91,948 | 86,823 | 77,739 |
Selling, general and administrative | 10,104 | 9,518 | 8,691 |
Preopening expenses | 51 | 37 | 46 |
Operating Income | 3,053 | 2,759 | 2,439 |
Other income (expense) | |||
Interest expense | (99) | (95) | (116) |
Interest income and other, net | 97 | 103 | 60 |
Income before income taxes | 3,051 | 2,767 | 2,383 |
Provision for income taxes | 990 | 1,000 | 841 |
Net income including noncontrolling interests | 2,061 | 1,767 | 1,542 |
Net income attributable to noncontrolling interests | (22) | (58) | (80) |
Net income attributable to Costco | $ 2,039 | $ 1,709 | $ 1,462 |
Consolidated Balance Sheets | ||
---|---|---|
($ millions, except par value and share data) | September 1, 2013 | September 2, 2012 |
Assets | ||
Current assets | ||
Cash and cash equivalents | $ 4,644 | $ 3,528 |
Short-term investments | 1,480 | 1,326 |
Receivables, net | 1,201 | 1,026 |
Merchandise inventories | 7,894 | 7,096 |
Deferred income taxes and other current assets | 621 | 550 |
Total current assets | 15,840 | 13,526 |
Property and equipment | ||
Land | 4,409 | 4,032 |
Buildings and improvements | 11,556 | 10,879 |
Equipment and fixtures | 4,472 | 4,261 |
Construction in progress | 585 | 374 |
21,022 | 19,546 | |
Less accumulated depreciation and amortization | (7,141) | (6,585) |
Net property and equipment | 13,881 | 12,961 |
Other assets | 562 | 653 |
Total assets | $ 30,283 | $ 27,140 |
Liabilities and equity | ||
Current liabilities | ||
Accounts payable | $ 7,872 | $ 7,303 |
Accrued salaries and benefits | 2,037 | 1,832 |
Accrued member rewards | 710 | 661 |
Accrued sales and other taxes | 382 | 397 |
Deferred membership fees | 1,167 | 1,101 |
Other current liabilities | 1,089 | 966 |
Total current liabilities | 13,257 | 12,260 |
Long-term debt, excluding current portion | 4,998 | 1,381 |
Deferred income taxes and other liabilities | 1,016 | 981 |
Total liabilities | 19,271 | 14,622 |
Equity | ||
Preferred stock, $0.005 par value: | ||
100,000,000 shares authorized; no shares issued and outstanding | 0 | 0 |
Common stock, $0.005 par value: | ||
900,000,000 shares authorized; | ||
436,839,000 and 432,350,000 shares issued and outstanding | 2 | 2 |
Additional paid-in-capital | 4,670 | 4,369 |
Accumulated other comprehensive (loss) income | (122) | 156 |
Retained earnings | 6,283 | 7,834 |
Total Costco stockholders’ equity | 10,833 | 12,361 |
Noncontrolling interests | 179 | 157 |
Total equity | 11,012 | 12,518 |
Total liabilities and equity | $ 30,283 | $ 27,140 |
NOTE: Using net income attributable to controlling interests with your computations, when applicable.
a. Compute ROE for 2013.
Do not round until your final answer. Round answers two decimal places.
ROE =Answer%
b. Confirm that ROE equals ROE computed using the component
measures for profit margin, asset turnover, and financial leverage
using: ROE = PM * AT * FL.
Compute the components of ROE.
Do not round until your final answer. Round answers two decimal places.
PM = Answer%
AT = Answer
FL = Answer
c. Compute adjusted ROA (assume a tax rate of 37%).
Round answer to two decimal places.
Adjusted ROA =Answer%
(a) | NOPAT=Operating income*(1-Tax rate)=3053*(1-0.37)=$ 1923 | ||||||||||||
c. | RNOA=Income before income taxes/Average total assets | ||||||||||||
Average total assets=(Beginning total assets+Ending total assets)/2=(30283+27140)/2=28711.5 | |||||||||||||
RNOA=3051/28711.5=0.10626=10.63% | |||||||||||||
NOPM=Net income/Total revenue=2061/105156=1.96 % | |||||||||||||
NOAT=Total revenue/Average current assets | |||||||||||||
Average current assets=(Beginning current assets+Ending current assets)/2=(15840+13526)/2=$ 14683 | |||||||||||||
NOAT=105156/14683=7.16 | |||||||||||||
(f) | Non-operating return component of ROE=ROE-RNOA | ||||||||||||
ROE=Net income/Average shareholder's equity | |||||||||||||
Average shareholder's equity=(Beginning shareholder's equity+Ending shareholder's equity)/2=(11012+12518)/2=$ 11765 | |||||||||||||
ROE=2061/11765=0.1751=17.52% | |||||||||||||
Non-operating return component of ROE=17.52-10.63=6.89% | |||||||||||||
(g) | ROE > RNOA implies that Costco is able to borrow money to fund operating assets that yield a return greater than its cost of debt | ||||||||||||