Costco Wholesale Corp. (NASDAQ:COST)

The period demonstrates fluctuating economic profit alongside increasing net operating profit after taxes and invested capital. A clear trend of growth in both NOPAT and invested capital is observable, though economic profit does not consistently follow this pattern.

Net Operating Profit After Taxes (NOPAT)

NOPAT increased from US$4,254 million in 2020 to US$5,292 million in 2021, representing substantial growth. This upward trend continued to US$6,421 million in 2022. A slight decrease to US$5,694 million was noted in 2023, but NOPAT rebounded to US$7,032 million in 2024 and further increased to US$7,834 million in 2025. Overall, NOPAT exhibits a positive growth trajectory across the analyzed period.

Cost of Capital

The cost of capital experienced a gradual increase from 14.10% in 2020 to 14.68% in 2024, where it remained stable through 2025. This consistent rise suggests a potentially increasing risk profile or changing market conditions impacting funding costs.

Invested Capital

Invested capital decreased slightly from US$29,043 million in 2020 to US$28,508 million in 2021. However, it then increased significantly to US$31,671 million in 2022 and continued to rise to US$34,903 million in 2023. A minor decrease to US$32,993 million occurred in 2024, followed by a substantial increase to US$37,996 million in 2025. The overall trend indicates a growing capital base.

Economic Profit

Economic profit began at US$159 million in 2020 and increased substantially to US$1,229 million in 2021. Further growth was observed in 2022, reaching US$1,871 million. However, economic profit decreased significantly to US$638 million in 2023. A strong recovery occurred in 2024, with economic profit rising to US$2,189 million, and continued to increase to US$2,256 million in 2025. The fluctuations in economic profit suggest that while NOPAT and invested capital are growing, the spread between returns and the cost of capital is not consistently expanding.

The divergence between the growth in NOPAT and invested capital and the fluctuations in economic profit warrants further investigation. While the company is generating increasing absolute profits and deploying more capital, the ability to generate returns exceeding the cost of that capital is not consistently improving. The decrease in economic profit in 2023, despite increased NOPAT and invested capital, is a notable point for consideration.

Net Income Attributable to Costco

The net income showed a consistent upward trend over the six-year period. Starting at 4,002 million USD, it increased steadily each year, reaching 8,099 million USD in the latest period. The largest year-over-year growth appeared from the 2023 to 2024 period, with an increase of approximately 1,075 million USD. Overall, net income approximately doubled from the first to the last reported year, reflecting strong profitability growth.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a generally increasing pattern as well, starting at 4,254 million USD in the earliest period and rising to 7,834 million USD in the most recent year. There was a slight deviation from the upward trend between 2022 and 2023, where NOPAT decreased from 6,421 million USD to 5,694 million USD before resuming growth. The recovery that followed saw a notable increase to 7,032 million USD and then to 7,834 million USD. This suggests a temporary operational challenge was overcome, leading to renewed profitability improvements.

General Observations

Both net income and NOPAT exhibited significant growth over the examined period, reinforcing a positive operational and financial trajectory. The temporary dip in NOPAT suggests some operational or cost-related challenges in the 2023 fiscal year, yet the strong rebound indicates effective management response or favorable market conditions. The steadier growth in net income compared to the fluctuating pattern of NOPAT could suggest impacts of non-operating factors or variations in tax effects during the period.

The financial data indicates a consistent upward trend in both the provision for income taxes and cash operating taxes over the analyzed period. This upward trajectory suggests increasing profitability or taxable income, requiring higher tax allocations.

Provision for Income Taxes

The provision for income taxes has increased from $1,308 million in 2020 to $2,719 million in 2025. This steady growth reflects a compounded annual increase, highlighting the company's growing tax liability over the years. The year-over-year increases range between approximately 17% to 24%, showing sustained expansion without volatility.

Cash Operating Taxes

Cash operating taxes also show a consistent rise from $1,246 million in 2020 to $2,750 million in 2025. Notably, cash operating taxes slightly exceed the provision for income taxes, which could indicate timing differences or tax payment strategies. The year-over-year growth in cash operational taxes aligns closely with the provision, reinforcing the narrative of increased cash outflows related to tax expenses.

Overall, the data reveals a parallel and proportionate increase in tax provisioning and payments, reflecting robust business performance and likely higher earnings. The absence of any decline or irregularity in these amounts suggests stable tax management and continuous financial growth throughout the period under review.

Total reported debt & leases

The total reported debt and leases exhibit a generally declining trend over the observed periods. Starting from approximately $11.1 billion, the amount slightly increased to around $11.4 billion in the second year, then consistently decreased in the subsequent years, reaching approximately $9.9 billion in the latest period. This suggests a gradual reduction in leverage or obligations related to debt and leases over time.

Total Costco stockholders’ equity

Stockholders' equity demonstrates significant growth across the years. There is an initial slight decline from about $18.3 billion to $17.6 billion, followed by a substantial increase to over $20.6 billion in the third period. This upward trajectory continues more markedly in the following years, reaching nearly $29.2 billion in the most recent period. The growth in equity indicates strengthening financial stability and retained earnings accumulation.

Invested capital

Invested capital shows a consistent upward trend, rising from approximately $29.0 billion at the beginning of the period to nearly $38.0 billion in the latest year. Despite a slight dip in one of the middle years, the general movement is positive, suggesting ongoing investment in the company's operations and assets. This increase in invested capital aligns with the growth observed in stockholders’ equity, reflecting expansion and reinvestment activities.

The economic spread ratio demonstrates considerable fluctuation over the observed period. Initially, the ratio stood at 0.55% in August 2020, indicating a modest spread between return on invested capital and the cost of capital. A substantial increase is then observed, reaching 4.31% in August 2021, followed by a further rise to 5.91% in August 2022. This suggests a period of improving profitability relative to the capital employed.

However, the ratio experienced a significant decline to 1.83% in September 2023, signaling a reduced economic spread. A recovery followed in September 2024, with the ratio increasing to 6.64%, representing the highest value within the analyzed timeframe. The most recent value, for August 2025, shows a slight decrease to 5.94%, though remaining at a relatively strong level.

Economic Spread Ratio Trend

The economic spread ratio exhibits a volatile pattern. The initial low value increased significantly over two years, then decreased sharply before recovering and stabilizing. This suggests the company’s ability to generate returns exceeding its cost of capital has varied considerably, potentially influenced by external economic factors or internal strategic shifts.

The economic profit, while positive throughout the period, does not perfectly correlate with the economic spread ratio. For example, despite a substantial increase in economic profit from 2020 to 2021, the largest percentage increase in the economic spread ratio occurred during that same period. The decline in the economic spread ratio in 2023 coincided with a decrease in economic profit, but the subsequent recovery in 2024 saw a more substantial increase in the ratio than in profit.

Invested Capital Relationship

Invested capital generally increased over the period, moving from US$29,043 million in 2020 to US$37,996 million in 2025. The fluctuations in the economic spread ratio do not appear directly tied to the overall trend in invested capital, suggesting that changes in profitability, rather than capital deployment, are the primary drivers of the observed ratio variations.

The observed pattern suggests a dynamic relationship between profitability and capital costs. While the company consistently generated economic profit, the efficiency with which capital was utilized to generate those profits, as reflected in the economic spread ratio, has been subject to considerable change.

The economic profit margin demonstrates significant fluctuation over the observed period. Initial values indicate a modest level of economic profitability, which then experiences substantial growth before declining and recovering. A detailed examination of the trends reveals key insights into the company’s performance.

Economic Profit Margin Trend

The economic profit margin began at 0.10% in August 2020. A considerable increase is then observed, reaching 0.64% in August 2021 and peaking at 0.84% in August 2022. A substantial decrease follows, with the margin falling to 0.27% in September 2023. Subsequently, the margin recovers to 0.88% in September 2024, and stabilizes at 0.84% in August 2025.

The period between 2020 and 2022 shows a strong positive trend in economic profit margin, suggesting improved efficiency in generating returns above the cost of capital. The sharp decline in September 2023 warrants further investigation to determine the underlying causes, such as increased costs, decreased sales, or a higher cost of capital. The subsequent recovery in 2024 and stabilization in 2025 indicate a return to more favorable economic profitability.

Relationship to Net Sales

While the economic profit margin fluctuated, net sales consistently increased throughout the period. Net sales grew from US$163,220 million in August 2020 to US$269,912 million in August 2025. The divergence between the increasing net sales and the fluctuating economic profit margin suggests that revenue growth alone does not guarantee improved economic profitability. Factors impacting the cost of generating those sales are also significant.

The economic profit margin’s volatility highlights the importance of ongoing monitoring and analysis. The company’s ability to maintain or improve the margin, particularly after the decline experienced in 2023, will be crucial for sustained value creation.