Microsoft Excel LibreOffice Calc

Costco Wholesale Corp. (COST)


Analysis of Inventory

Advanced level


Accounting Policy on Inventory

Merchandise inventories are stated at the lower of cost or market. U.S. merchandise inventories are valued by the cost method of accounting, using the last-in, first-out (LIFO) basis. Costco believes the LIFO method more fairly presents the results of operations by more closely matching current costs with current revenues. Costco records an adjustment each quarter, if necessary, for the projected annual effect of inflation or deflation, and these estimates are adjusted to actual results determined at year-end, after actual inflation or deflation rates and inventory levels have been determined. As of September 1, 2019 and September 2, 2018, U.S. merchandise inventories valued at LIFO approximated first-in, first-out (FIFO) after considering the lower of cost or market principle. Canadian and Other International merchandise inventories are predominantly valued using the cost and retail inventory methods, respectively, using the FIFO basis.

Costco provides for estimated inventory losses between physical inventory counts as a percentage of net sales, using estimates based on Costco’s experience. The provision is adjusted periodically to reflect physical inventory counts, which generally occur in the second and fourth fiscal quarters. Inventory cost, where appropriate, is reduced by estimates of vendor rebates when earned or as Costco progresses towards earning those rebates, provided that they are probable and reasonably estimable.

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


Inventory Disclosure

Costco Wholesale Corp., balance sheet: inventory

US$ in millions

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Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
United States 8,415  8,081  7,091  6,422  6,427  5,952 
Canada 1,123  1,189  1,040  1,015  —  — 
Other International 1,857  1,770  1,703  1,532  2,481  2,504 
Merchandise inventories 11,395  11,040  9,834  8,969  8,908  8,456 

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
Merchandise inventories Amount after valuation and LIFO reserves of inventory expected to be sold, or consumed within one year or operating cycle, if longer. Costco Wholesale Corp.’s merchandise inventories increased from 2017 to 2018 and from 2018 to 2019.

Adjustment to Inventory: Conversion from LIFO to FIFO

Adjusting LIFO Inventory to FIFO (Current) Cost

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 Merchandise Inventories
Merchandise inventories at LIFO (as reported) 11,395  11,040  9,834  8,969  8,908  8,456 
Add: Inventory LIFO reserve —  —  (64) —  82  109 
Merchandise inventories at FIFO (adjusted) 11,395  11,040  9,770  8,969  8,990  8,565 
Adjustment to Current Assets
Current assets (as reported) 23,485  20,289  17,317  15,218  17,299  17,588 
Add: Inventory LIFO reserve —  —  (64) —  82  109 
Current assets (adjusted) 23,485  20,289  17,253  15,218  17,381  17,697 
Adjustment to Total Assets
Total assets (as reported) 45,400  40,830  36,347  33,163  33,440  33,024 
Add: Inventory LIFO reserve —  —  (64) —  82  109 
Total assets (adjusted) 45,400  40,830  36,283  33,163  33,522  33,133 
Adjustment to Total Costco Stockholders’ Equity
Total Costco stockholders’ equity (as reported) 15,243  12,799  10,778  12,079  10,617  12,303 
Add: Inventory LIFO reserve —  —  (64) —  82  109 
Total Costco stockholders’ equity (adjusted) 15,243  12,799  10,714  12,079  10,699  12,412 
Adjustment to Net Income Attributable To Costco
Net income attributable to Costco (as reported) 3,659  3,134  2,679  2,350  2,377  2,058 
Add: Increase (decrease) in inventory LIFO reserve —  64  (64) (82) (27) 28 
Net income attributable to Costco (adjusted) 3,659  3,198  2,615  2,268  2,350  2,086 

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.’s inventory value on Sep 1, 2019 would be $11,395  (in millions) if the FIFO inventory method was used instead of LIFO. Costco Wholesale Corp.’s inventories, valued on a LIFO basis, on Sep 1, 2019 were $11,395 . Costco Wholesale Corp.’s inventories would have been $—  higher than reported on Sep 1, 2019 if the FIFO method had been used instead.


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


Adjusted Financial Ratios: LIFO vs. FIFO (Summary)

Costco Wholesale Corp., adjusted financial ratios

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Sep 1, 2019 Sep 2, 2018 Sep 3, 2017 Aug 28, 2016 Aug 30, 2015 Aug 31, 2014
Current Ratio
Reported current ratio (LIFO) 1.01 1.02 0.99 0.98 1.05 1.22
Adjusted current ratio (FIFO) 1.01 1.02 0.99 0.98 1.05 1.23
Net Profit Margin
Reported net profit margin (LIFO) 2.45% 2.26% 2.12% 2.02% 2.09% 1.87%
Adjusted net profit margin (FIFO) 2.45% 2.31% 2.07% 1.95% 2.07% 1.89%
Total Asset Turnover
Reported total asset turnover (LIFO) 3.29 3.39 3.47 3.50 3.40 3.34
Adjusted total asset turnover (FIFO) 3.29 3.39 3.48 3.50 3.39 3.33
Financial Leverage
Reported financial leverage (LIFO) 2.98 3.19 3.37 2.75 3.15 2.68
Adjusted financial leverage (FIFO) 2.98 3.19 3.39 2.75 3.13 2.67
Return on Equity (ROE)
Reported ROE (LIFO) 24.00% 24.49% 24.86% 19.46% 22.39% 16.73%
Adjusted ROE (FIFO) 24.00% 24.99% 24.41% 18.78% 21.96% 16.81%
Return on Assets (ROA)
Reported ROA (LIFO) 8.06% 7.68% 7.37% 7.09% 7.11% 6.23%
Adjusted ROA (FIFO) 8.06% 7.83% 7.21% 6.84% 7.01% 6.30%

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 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 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 improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
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 23,485  20,289  17,317  15,218  17,299  17,588 
Current liabilities 23,237  19,926  17,495  15,575  16,540  14,412 
Liquidity Ratio
Current ratio1 1.01 1.02 0.99 0.98 1.05 1.22
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted current assets 23,485  20,289  17,253  15,218  17,381  17,697 
Current liabilities 23,237  19,926  17,495  15,575  16,540  14,412 
Liquidity Ratio
Adjusted current ratio2 1.01 1.02 0.99 0.98 1.05 1.23

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
= 23,485 ÷ 23,237 = 1.01

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= 23,485 ÷ 23,237 = 1.01

Liquidity ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by 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 3,659  3,134  2,679  2,350  2,377  2,058 
Net sales 149,351  138,434  126,172  116,073  113,666  110,212 
Profitability Ratio
Net profit margin1 2.45% 2.26% 2.12% 2.02% 2.09% 1.87%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Costco 3,659  3,198  2,615  2,268  2,350  2,086 
Net sales 149,351  138,434  126,172  116,073  113,666  110,212 
Profitability Ratio
Adjusted net profit margin2 2.45% 2.31% 2.07% 1.95% 2.07% 1.89%

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 × 3,659 ÷ 149,351 = 2.45%

2 Adjusted net profit margin = 100 × Adjusted net income attributable to Costco ÷ Net sales
= 100 × 3,659 ÷ 149,351 = 2.45%

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by 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 149,351  138,434  126,172  116,073  113,666  110,212 
Total assets 45,400  40,830  36,347  33,163  33,440  33,024 
Activity Ratio
Total asset turnover1 3.29 3.39 3.47 3.50 3.40 3.34
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Net sales 149,351  138,434  126,172  116,073  113,666  110,212 
Adjusted total assets 45,400  40,830  36,283  33,163  33,522  33,133 
Activity Ratio
Adjusted total asset turnover2 3.29 3.39 3.48 3.50 3.39 3.33

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
= 149,351 ÷ 45,400 = 3.29

2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 149,351 ÷ 45,400 = 3.29

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 45,400  40,830  36,347  33,163  33,440  33,024 
Total Costco stockholders’ equity 15,243  12,799  10,778  12,079  10,617  12,303 
Solvency Ratio
Financial leverage1 2.98 3.19 3.37 2.75 3.15 2.68
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted total assets 45,400  40,830  36,283  33,163  33,522  33,133 
Adjusted total Costco stockholders’ equity 15,243  12,799  10,714  12,079  10,699  12,412 
Solvency Ratio
Adjusted financial leverage2 2.98 3.19 3.39 2.75 3.13 2.67

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
= 45,400 ÷ 15,243 = 2.98

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted total Costco stockholders’ equity
= 45,400 ÷ 15,243 = 2.98

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 3,659  3,134  2,679  2,350  2,377  2,058 
Total Costco stockholders’ equity 15,243  12,799  10,778  12,079  10,617  12,303 
Profitability Ratio
ROE1 24.00% 24.49% 24.86% 19.46% 22.39% 16.73%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Costco 3,659  3,198  2,615  2,268  2,350  2,086 
Adjusted total Costco stockholders’ equity 15,243  12,799  10,714  12,079  10,699  12,412 
Profitability Ratio
Adjusted ROE2 24.00% 24.99% 24.41% 18.78% 21.96% 16.81%

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 × 3,659 ÷ 15,243 = 24.00%

2 Adjusted ROE = 100 × Adjusted net income attributable to Costco ÷ Adjusted total Costco stockholders’ equity
= 100 × 3,659 ÷ 15,243 = 24.00%

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 improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

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 3,659  3,134  2,679  2,350  2,377  2,058 
Total assets 45,400  40,830  36,347  33,163  33,440  33,024 
Profitability Ratio
ROA1 8.06% 7.68% 7.37% 7.09% 7.11% 6.23%
Adjusted: After Conversion from LIFO to FIFO
Selected Financial Data (US$ in millions)
Adjusted net income attributable to Costco 3,659  3,198  2,615  2,268  2,350  2,086 
Adjusted total assets 45,400  40,830  36,283  33,163  33,522  33,133 
Profitability Ratio
Adjusted ROA2 8.06% 7.83% 7.21% 6.84% 7.01% 6.30%

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 × 3,659 ÷ 45,400 = 8.06%

2 Adjusted ROA = 100 × Adjusted net income attributable to Costco ÷ Adjusted total assets
= 100 × 3,659 ÷ 45,400 = 8.06%

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.