Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Costco Wholesale Corp. (NASDAQ:COST)

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Analysis of Income Taxes

Advanced level


Accounting Policy on Income Taxes

Costco accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts that are more likely than not expected to be realized.

The timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions requires significant judgment. The benefits of uncertain tax positions are recorded in Costco’s consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge from tax authorities. When facts and circumstances change, Costco reassesses these probabilities and records any changes as appropriate.

Source: 10-K (filing date: 2019-10-11).


Income Tax Expense (Benefit)

Costco Wholesale Corp., income tax expense (benefit), continuing operations

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended: Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
Federal
State
Foreign
Current
Federal
State
Foreign
Deferred
Provision for income taxes

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

Item Description The company
Current Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Costco Wholesale Corp.’s current decreased from 2017 to 2018 and from 2018 to 2019.
Deferred Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Costco Wholesale Corp.’s deferred decreased from 2017 to 2018 but then increased from 2018 to 2019 exceeding 2017 level.
Provision for income taxes Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Costco Wholesale Corp.’s provision for income taxes decreased from 2017 to 2018 and from 2018 to 2019.

Effective Income Tax Rate (EITR)

Costco Wholesale Corp., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
Statutory tax rate
State taxes, net
Foreign taxes, net
Employee stock ownership plan (ESOP)
Other
Effective tax rate, before 2017 Tax Act
2017 Tax Act
Effective tax rate

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

Item Description The company
Effective tax rate, before 2017 Tax Act Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Costco Wholesale Corp.’s effective tax rate, before 2017 Tax Act decreased from 2017 to 2018 and from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

Costco Wholesale Corp., components of deferred tax assets and liabilities

US$ in millions

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
Equity compensation
Deferred income/membership fees
Foreign tax credit carry forward
Accrued liabilities and reserves
Other
Deferred tax assets
Valuation allowance
Net deferred tax assets
Property and equipment
Merchandise inventories
Foreign branch deferreds
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

Item Description The company
Deferred tax assets Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Costco Wholesale Corp.’s deferred tax assets decreased from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.
Net deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Costco Wholesale Corp.’s net deferred tax assets decreased from 2017 to 2018 but then slightly increased from 2018 to 2019.
Net deferred tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. Costco Wholesale Corp.’s net deferred tax assets (liabilities) increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

Deferred Tax Assets and Liabilities, Classification

Costco Wholesale Corp., deferred tax assets and liabilities, classification

US$ in millions

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
Current deferred income tax assets (included in Other current assets)
Non-current deferred income tax assets (included in Other assets)
Non-current deferred income tax liabilities (included in Other liabilities)

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

Item Description The company
Non-current deferred income tax assets (included in Other assets) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, with jurisdictional netting and classified as noncurrent. Costco Wholesale Corp.’s non-current deferred income tax assets (included in Other assets) increased from 2017 to 2018 and from 2018 to 2019.
Non-current deferred income tax liabilities (included in Other liabilities) Amount, after deferred tax asset, of deferred tax liability attributable to taxable differences, with jurisdictional netting and classified as noncurrent. Costco Wholesale Corp.’s non-current deferred income tax liabilities (included in Other liabilities) increased from 2017 to 2018 and from 2018 to 2019.

Adjustments to Financial Statements: Removal of Deferred Taxes

Costco Wholesale Corp., adjustments to financial statements

US$ in millions

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
Adjustment to Current Assets
Current assets (as reported)
Less: Current deferred tax assets, net
Current assets (adjusted)
Adjustment to Total Assets
Total assets (as reported)
Less: Current deferred tax assets, net
Less: Noncurrent deferred tax assets, net
Total assets (adjusted)
Adjustment to Total Liabilities
Total liabilities (as reported)
Less: Noncurrent deferred tax liabilities, net
Total liabilities (adjusted)
Adjustment to Total Costco Stockholders’ Equity
Total Costco stockholders’ equity (as reported)
Less: Net deferred tax assets (liabilities)
Total Costco stockholders’ equity (adjusted)
Adjustment to Net Income Attributable To Costco
Net income attributable to Costco (as reported)
Add: Deferred income tax expense (benefit)
Net income attributable to Costco (adjusted)

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).


Costco Wholesale Corp., Financial Data: Reported vs. Adjusted


Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Costco Wholesale Corp., adjusted financial ratios

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
Current Ratio
Reported current ratio
Adjusted current ratio
Net Profit Margin
Reported net profit margin
Adjusted net profit margin
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE
Adjusted ROE
Return on Assets (ROA)
Reported ROA
Adjusted ROA

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

Financial ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Costco Wholesale Corp.’s adjusted current ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Costco Wholesale Corp.’s adjusted net profit margin ratio improved from 2017 to 2018 and from 2018 to 2019.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Costco Wholesale Corp.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 and from 2018 to 2019.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Costco Wholesale Corp.’s adjusted financial leverage ratio decreased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Costco Wholesale Corp.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Costco Wholesale Corp.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019.

Costco Wholesale Corp., Financial Ratios: Reported vs. Adjusted


Adjusted Current Ratio

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Current assets
Current liabilities
Liquidity Ratio
Current ratio1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted current assets
Current liabilities
Liquidity Ratio
Adjusted current ratio2

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

2019 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= ÷ =

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =

Liquidity ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. Costco Wholesale Corp.’s adjusted current ratio improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Costco
Net sales
Profitability Ratio
Net profit margin1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Costco
Net sales
Profitability Ratio
Adjusted net profit margin2

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

2019 Calculations

1 Net profit margin = 100 × Net income attributable to Costco ÷ Net sales
= 100 × ÷ =

2 Adjusted net profit margin = 100 × Adjusted net income attributable to Costco ÷ Net sales
= 100 × ÷ =

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Costco Wholesale Corp.’s adjusted net profit margin ratio improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net sales
Total assets
Activity Ratio
Total asset turnover1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Net sales
Adjusted total assets
Activity Ratio
Adjusted total asset turnover2

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

2019 Calculations

1 Total asset turnover = Net sales ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Costco Wholesale Corp.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 and from 2018 to 2019.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets
Total Costco stockholders’ equity
Solvency Ratio
Financial leverage1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted total assets
Adjusted total Costco stockholders’ equity
Solvency Ratio
Adjusted financial leverage2

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

2019 Calculations

1 Financial leverage = Total assets ÷ Total Costco stockholders’ equity
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Costco stockholders’ equity
= ÷ =

Solvency ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
Costco Wholesale Corp.’s adjusted financial leverage ratio decreased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Costco
Total Costco stockholders’ equity
Profitability Ratio
ROE1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Costco
Adjusted total Costco stockholders’ equity
Profitability Ratio
Adjusted ROE2

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

2019 Calculations

1 ROE = 100 × Net income attributable to Costco ÷ Total Costco stockholders’ equity
= 100 × ÷ =

2 Adjusted ROE = 100 × Adjusted net income attributable to Costco ÷ Adjusted total Costco stockholders’ equity
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Costco Wholesale Corp.’s adjusted ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income attributable to Costco
Total assets
Profitability Ratio
ROA1
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Costco
Adjusted total assets
Profitability Ratio
Adjusted ROA2

Based on: 10-K (filing date: 2019-10-11), 10-K (filing date: 2018-10-26), 10-K (filing date: 2017-10-18), 10-K (filing date: 2016-10-12), 10-K (filing date: 2015-10-14), 10-K (filing date: 2014-10-15).

2019 Calculations

1 ROA = 100 × Net income attributable to Costco ÷ Total assets
= 100 × ÷ =

2 Adjusted ROA = 100 × Adjusted net income attributable to Costco ÷ Adjusted total assets
= 100 × ÷ =

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Costco Wholesale Corp.’s adjusted ROA improved from 2017 to 2018 and from 2018 to 2019.