Homework SourseAnalysis and Interpretation of Liquidity and Solvency Balanc
Analysis and Interpretation of Liquidity and Solvency
Balance sheets and income statements for Costco Wholesale Corporation follow.
(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 =$Answer million
2016 NNEP =Answer% Round NNEP to two decimal places.
2016 FLEV = Answer Round FLEV to four decimal places.
2016 Spread = Answer% Round Spread to two decimal places.
2016 NCI ratio = Answer Round NCI ratio to four decimal places.
(b) Assume that Costco\'s return on equity (ROE) for 2016 is 20.71% and its return on net operating assets (RNOA) is 20.66%. Confirm computations to yield the relation: ROE = [RNOA + (FLEV X Spread)] X NCI ratio.
2016 ROE =Answer% = [Answer%+(Answer X Answer%)] X Answer
(c) What do your computations of the nonoperating return in parts (a) and (b) imply about the company\'s use of borrowed funds?
Costco\'s FLEV is negative - meaning its non-operating assets exceed its non-operating liabilities. Costco has a high level of short term investments to use for new opportunities.
Costco\'s FLEV is negative - meaning its non-operating liabilities exceed its non operating assets. Costco will need to rely on debt to finance new opportunities.
Costco\'s FLEV is positive - meaning its non-operating assets exceed its non-operating liabilities. Costco has a high level of cash and short term investments to use for new opportunities.
Costco\'s FLEV is positive - meaning its non-operating liabilities exceed its non-operating assets. Costco has a high level of cash and short term investments to use for new opportunties.
| Costco Wholesale Corporation | |||
|---|---|---|---|
| Consolidated Statements of Earnings | |||
| For Fiscal Years Ended ($ 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
11348
| FLEV = Avg NNO/Avg SE | 1.2935319 | |||||||||
| NNO | ||||||||||
| 28-Aug-16 | 30-Aug-15 | |||||||||
| ST debt | 14475 | 15256 | ||||||||
| Current portion of LT debt | 1100 | 283 | ||||||||
| LT debt | 4061 | 4852 | ||||||||
| NC interest of equity | 253 | 226 | ||||||||
| Less: | ||||||||||
| Cash | -3379 | -4801 | ||||||||
| ST Invest | -1350 | -1618 | ||||||||
| 15160 | 14198 | |||||||||
| Avg NNo | 14679 | |||||||||
| SE (Excluding NCI) | 12079 | 10617 | ||||||||
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