Income Tax Accounting Policy
Income Tax Expense (Benefit)
Effective Income Tax Rate (EITR)
Components of Deferred Tax Assets and Liabilities
Deferred Tax Assets and Liabilities, Classification
Adjustments to Financial Statements: Removal of Deferred Taxes
Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)
Adjusted Current Ratio
Adjusted Net Profit Margin
Adjusted Total Asset Turnover
Adjusted Financial Leverage
Adjusted Return on Equity (ROE)
Adjusted Return on Assets (ROA)

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).

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

US$ in millions

	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 declined 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 declined 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 declined from 2017 to 2018 and from 2018 to 2019.

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

		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 declined from 2017 to 2018 and from 2018 to 2019.

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

US$ in millions

		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 declined 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 declined 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 declined significantly from 2018 to 2019.

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

US$ in millions

		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.

Costco Wholesale Corp., adjustments to financial statements

US$ in millions

		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

Costco Wholesale Corp., adjusted financial ratios

		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 declined 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

		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
= hidden ÷ hidden = hidden

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

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.

		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 × hidden ÷ hidden = hidden

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

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.

		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
= hidden ÷ hidden = hidden

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

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.

		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
= hidden ÷ hidden = hidden

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

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 declined from 2017 to 2018 and from 2018 to 2019.

		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 × hidden ÷ hidden = hidden

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

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.

		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 × hidden ÷ hidden = hidden

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

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.

	Costco Wholesale Corp.	Other companies (not purchased previously)
Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Analysis of Financial Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis of Components of Financial Statements
Financial Reporting Quality

Costco Wholesale Corp. (COST)

Analysis of Income Taxes

Income Tax Accounting Policy

Income Tax Expense (Benefit)

Effective Income Tax Rate (EITR)

Components of Deferred Tax Assets and Liabilities

Deferred Tax Assets and Liabilities, Classification

Adjustments to Financial Statements: Removal of Deferred Taxes

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

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

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

Adjusted Current Ratio

Adjusted Net Profit Margin

Adjusted Total Asset Turnover

Adjusted Financial Leverage

Adjusted Return on Equity (ROE)

Adjusted Return on Assets (ROA)