Compute Costco\'s financial leverage (FLEV), Spread, and noncontrolling interest

Question

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

Explanation / Answer

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%.

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