Compute Costcos financial leverage FLEV Spread and noncontro

Compute Costco\'s financial leverage (FLEV), Spread, and noncontrolling interest (NCI) ratio for 2016; recall, NNE = NOPAT-Net income. Remember to use negative signs with answers, when appropriate.

(a) Compute Costco\'s financial leverage (FLEV), Spread, and noncontrolling interest (NCI) ratio for 2016; recall, NNE = NOPAT-Net income.

Remember to use negative signs with answers, when appropriate.  

2016 NNO =$Answer

million
2015 NNO =$Answer

million  

2016 NNE =$Answer

million
2016 NNEP =Answer

% Round NNEP to two decimal places.   

2016 FLEV        = Answer

  Round FLEV to four decimal places.   
2016 Spread    = Answer

% Round Spread to two decimal places.
2016 NCI ratio = Answer

Round NCI ratio to four decimal places.

(b) Assume that Costco\'s return on equity (ROE) for 2016 is 20.71% and its return on net operating assets (RNOA) is 20.66%. Confirm computations to yield the relation: ROE = [RNOA + (FLEV X Spread)] X NCI ratio.

2016 ROE =Answer

% = [Answer

%+(Answer

X Answer

%)] X Answer

Costco Wholesale Corporation
Consolidated Statements of Earnings
For Fiscal Years Ended ($ millions)	August 28, 2016	August 30, 2015	August 31, 2014
Revenue
Net Sales	$116,073	$113,666	$110,212
Membership fees	2,646	2,533	2,428
Total revenue	118,719	116,199	112,640
Operating expenses
Merchandise costs	102,901	101,065	98,458
Selling, general and administrative	12,068	11,445	10,899
Preopening expenses	78	65	63
Operating Income	3,672	3,624	3,220
Other income (expense)
Interest expense	(133)	(124)	(113)
Interest income and other, net	80	104	90
Income before income taxes	3,619	3,604	3,197
Provision for income taxes	1,243	1,195	1,109
Net income including noncontrolling interests	2,376	2,409	2,088
Net income attributable to noncontrolling interests	(26)	(32)	(30)
Net income attributable to Costco	$2,350	$2,377	$2,058

Solution

Answer (a) (1) Financial Leverage Ratio: Debt/Equity 42.62% Total Equity: $12,332 Debt Long-term debt, excluding current portion $4,061 Other liabilities $1,195 Total Debt $5,256 (2) Spread is the difference between interest earned on loans, securities, and other interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. Interest Earned 80 Interest Expense 133 Spread (Amount) 53 In % Interest Rate (Income) 80/33163       0.24 Interest Rate (Exp) 133/20831       0.64 Spread Rate       0.40 (3) Non -Controlling Interest Ratio: NCI Amount/Total Equity Amount 253/12332 2.05% Answer (b) (1) ROE = [RNOA + (FLEV X Spread)] X NCI ratio. [(20.71%+(42.62% x 0.40%)] x 2.05% 20.71% Return on equity (ROE) for 2016 is 20.71% Return on net operating assets (RNOA) is 20.66%.