EVA is registered trademark of Stern Stewart.

Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.

Economic Profit
Net Operating Profit after Taxes (NOPAT)
Cash Operating Taxes
Invested Capital
Cost of Capital
Economic Spread Ratio
Economic Profit Margin

Costco Wholesale Corp., economic profit calculation

US$ in millions

	12 months ended	Sep 2, 2018	Sep 3, 2017	Aug 28, 2016	Aug 30, 2015	Aug 31, 2014	Sep 1, 2013
	Net operating profit after taxes (NOPAT)¹
	Cost of capital²
	Invested capital³

	Economic profit⁴

Based on: 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), 10-K (filing date: 2013-10-16).

¹ NOPAT. See details »

² Cost of capital. See details »

³ Invested capital. See details »

<>⁴ 2018 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
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–

×

=

Item	Description	The company
Economic profit	Economic profit is a measure of corporate performance computed by taking the spread between the return on invested capital and the cost of capital, and multiplying by the invested capital.	Costco Wholesale Corp.’s economic profit increased from 2016 to 2017 and from 2017 to 2018.

Costco Wholesale Corp., NOPAT calculation

US$ in millions

	12 months ended	Sep 2, 2018	Sep 3, 2017	Aug 28, 2016	Aug 30, 2015	Aug 31, 2014	Sep 1, 2013
	Net income attributable to Costco
	Deferred income tax expense (benefit)¹
	Increase (decrease) in LIFO reserve²
	Increase (decrease) in equity equivalents³
	Interest expense
	Interest expense, operating lease liability⁴
	Adjusted interest expense
	Tax benefit of interest expense⁵
	Adjusted interest expense, after taxes⁶
	(Gain) loss on marketable securities
	Interest income
	Investment income, before taxes
	Tax expense (benefit) of investment income⁷
	Investment income, after taxes⁸
	Net income (loss) attributable to noncontrolling interest
	Net operating profit after taxes (NOPAT)

Based on: 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), 10-K (filing date: 2013-10-16).

¹ Elimination of deferred tax expense. See details »

² Addition of increase (decrease) in LIFO reserve. See details »

³ Addition of increase (decrease) in equity equivalents to net income attributable to Costco.

⁴ 2018 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= hidden × hidden = hidden

⁵ 2018 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= hidden × 25.60% = hidden

⁶ Addition of after taxes interest expense to net income attributable to Costco.

⁷ 2018 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= hidden × 25.60% = hidden

⁸ Elimination of after taxes investment income.

Item	Description	The company
NOPAT	Net operating profit after taxes is income from operations, but after removement of taxes calculated on cash basis that are relevant to operating income.	Costco Wholesale Corp.’s NOPAT increased from 2016 to 2017 and from 2017 to 2018.

Costco Wholesale Corp., cash operating taxes calculation

US$ in millions

	12 months ended	Sep 2, 2018	Sep 3, 2017	Aug 28, 2016	Aug 30, 2015	Aug 31, 2014	Sep 1, 2013
	Provision for income taxes
	Less: Deferred income tax expense (benefit)
	Add: Tax savings from interest expense
	Less: Tax imposed on investment income
	Cash operating taxes

Based on: 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), 10-K (filing date: 2013-10-16).

Item	Description	The company
Cash operating taxes	Cash operating taxes are estimated by adjusting income tax expense for changes in deferred taxes and tax benefit from the interest deduction.	Costco Wholesale Corp.’s cash operating taxes increased from 2016 to 2017 but then slightly declined from 2017 to 2018.

Costco Wholesale Corp., invested capital calculation (financing approach)

US$ in millions

		Sep 2, 2018	Sep 3, 2017	Aug 28, 2016	Aug 30, 2015	Aug 31, 2014	Sep 1, 2013
	Short-term borrowings
	Current portion of long-term debt
	Long-term debt, excluding current portion
	Operating lease liability¹
	Total reported debt & leases
	Total Costco stockholders’ equity
	Net deferred tax (assets) liabilities²
	LIFO reserve³
	Equity equivalents⁴
	Accumulated other comprehensive (income) loss, net of tax⁵
	Noncontrolling interests
	Adjusted total Costco stockholders’ equity
	Construction in progress⁶
	Short-term investments⁷
	Invested capital

Based on: 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), 10-K (filing date: 2013-10-16).

¹ Addition of capitalized operating leases.

² Elimination of deferred taxes from assets and liabilities. See details »

³ Addition of LIFO reserve. See details »

⁴ Addition of equity equivalents to total Costco stockholders’ equity.

⁵ Removal of accumulated other comprehensive income.

⁶ Subtraction of construction in progress.

⁷ Subtraction of short-term investments.

Item	Description	The company
Invested capital	Capital is an approximation of the economic book value of all cash invested in going-concern business activities.	Costco Wholesale Corp.’s invested capital increased from 2016 to 2017 and from 2017 to 2018.

Costco Wholesale Corp., cost of capital calculations

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 25.60%)	=
Operating lease liability⁴		÷	=		×	× (1 – 25.60%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2018-10-26).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2017-10-18).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2016-10-12).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2015-10-14).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2014-10-15).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

	Weights			Cost of capital
Equity²		÷	=		×		=
Debt³		÷	=		×	× (1 – 35.00%)	=
Operating lease liability⁴		÷	=		×	× (1 – 35.00%)	=
Total capital:	Total weights:			Cost of total capital:

Based on: 10-K (filing date: 2013-10-16).

¹ US$ in millions

² Equity. See details »

³ Debt. See details »

⁴ Operating lease liability. See details »

Costco Wholesale Corp., economic spread ratio calculation

		Sep 2, 2018	Sep 3, 2017	Aug 28, 2016	Aug 30, 2015	Aug 31, 2014	Sep 1, 2013
	Selected Financial Data (US$ in millions)
	Economic profit¹
	Invested capital²
	Performance Ratio
	Economic spread ratio³

Based on: 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), 10-K (filing date: 2013-10-16).

¹ Economic profit. See details »

² Invested capital. See details »

³ 2018 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × hidden ÷ hidden = hidden

Performance ratio	Description	The company
Economic spread ratio	The ratio of economic profit to invested capital, also equal to the difference between return on invested capital (ROIC) and cost of capital.	Costco Wholesale Corp.’s economic spread ratio improved from 2016 to 2017 and from 2017 to 2018.

Costco Wholesale Corp., economic profit margin calculation

		Sep 2, 2018	Sep 3, 2017	Aug 28, 2016	Aug 30, 2015	Aug 31, 2014	Sep 1, 2013
	Selected Financial Data (US$ in millions)
	Economic profit¹
	Net sales
	Performance Ratio
	Economic profit margin²

Based on: 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), 10-K (filing date: 2013-10-16).

¹ Economic profit. See details »

² 2018 Calculation
Economic profit margin = 100 × Economic profit ÷ Net sales
= 100 × hidden ÷ hidden = hidden

Performance ratio	Description	The company
Economic profit margin	The ratio of economic profit to sales. It is the company’s profit margin covering income efficiency and asset management. Economic profit margin is not biased in favor of capital-intensive business models, because any added capital is a cost to the economic profit margin.	Costco Wholesale Corp.’s economic profit margin improved from 2016 to 2017 and from 2017 to 2018.

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Costco Wholesale Corp. (COST)

Economic Value Added (EVA)

Economic Profit

Net Operating Profit after Taxes (NOPAT)

Cash Operating Taxes

Invested Capital

Cost of Capital

Sep 2, 2018

Sep 3, 2017

Aug 28, 2016

Aug 30, 2015

Aug 31, 2014

Sep 1, 2013

Economic Spread Ratio

Economic Profit Margin