Costco Wholesale Corp. (COST)

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 determination of Costco's provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. 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, if any, from tax authorities. When facts and circumstances change, Costco reassesses these probabilities and records any changes as appropriate. Certain of Costco's cumulative foreign undistributed earnings were considered by Costco to be indefinitely reinvested as of September 3, 2017. These earnings would be subject to U.S. income tax if Costco changed its position and could result in a U.S. tax liability. Although Costco has historically asserted that certain non-U.S. undistributed earnings will be permanently reinvested, it may repatriate such earnings to the extent it can do so without an adverse tax consequence.

Source: Costco Wholesale Corp., Annual Report

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

USD $ in millions

Source: Based on data from Costco Wholesale Corp. Annual Reports

Item	Description	The company
Current	The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations.	Costco Wholesale Corp.'s current declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Deferred	The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations.	Costco Wholesale Corp.'s deferred increased from 2015 to 2016 but then slightly declined from 2016 to 2017 not reaching 2015 level.
Provision for income taxes	The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy.	Costco Wholesale Corp.'s provision for income taxes increased from 2015 to 2016 and from 2016 to 2017.

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

Source: Based on data from Costco Wholesale Corp. Annual Reports

Item	Description	The company
Effective tax rate	A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations.	Costco Wholesale Corp.'s effective tax rate increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

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

USD $ in millions

Source: Based on data from Costco Wholesale Corp. Annual Reports

Item	Description	The company
Deferred tax assets	The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value.	Costco Wholesale Corp.'s deferred tax assets increased from 2015 to 2016 and from 2016 to 2017.
Net deferred tax assets (liabilities)	For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods.	Costco Wholesale Corp.'s net deferred tax assets (liabilities) declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

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

USD $ in millions

Source: Based on data from Costco Wholesale Corp. Annual Reports

Item	Description	The company
Current deferred income tax assets (included in Other current assets)	The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.
Non-current deferred income tax assets (included in Other assets)	The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	Costco Wholesale Corp.'s non-current deferred income tax assets (included in Other assets) increased from 2015 to 2016 and from 2016 to 2017.
Non-current deferred income tax liabilities (included in Other liabilities)	Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	Costco Wholesale Corp.'s non-current deferred income tax liabilities (included in Other liabilities) declined from 2015 to 2016 but then slightly increased from 2016 to 2017.

Costco Wholesale Corp., adjustments to financial data

USD $ in millions

Costco Wholesale Corp., adjusted ratios

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 deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.
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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Costco Wholesale Corp.'s adjusted total asset turnover improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017.
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 declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Costco Wholesale Corp.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Costco Wholesale Corp.'s adjusted ROA improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

2017 Calculations

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 deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

2017 Calculations

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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.

2017 Calculations

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 improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017.

2017 Calculations

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 declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

2017 Calculations

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 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

2017 Calculations

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 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level.