Costco Wholesale Corp. (NASDAQ:COST)

The period demonstrates fluctuating, but generally positive, trends in economic profit. Net operating profit after taxes (NOPAT) increased from 2020 to 2022, experienced a decline in 2023, and then resumed growth through 2025. The cost of capital consistently increased over the observed period, while invested capital showed an overall upward trend with some intermediate fluctuations. These movements collectively influence the resulting economic profit.

NOPAT Trend

NOPAT increased significantly from US$4,254 million in 2020 to US$6,421 million in 2022, representing substantial operational improvement. A decrease to US$5,694 million occurred in 2023, potentially due to increased expenses or decreased revenue. Subsequent increases to US$7,032 million in 2024 and US$7,834 million in 2025 indicate a recovery and continued growth in operational profitability.

Cost of Capital Trend

The cost of capital exhibited a steady upward trend, increasing from 14.10% in 2020 to 14.68% in both 2024 and 2025. This suggests increasing financing costs, potentially due to rising interest rates or perceived risk. The stabilization in 2024 and 2025 may indicate a plateau in these cost increases.

Invested Capital Trend

Invested capital initially decreased from US$29,043 million in 2020 to US$28,508 million in 2021. However, it then increased to US$31,671 million in 2022 and further to US$34,903 million in 2023. A slight decrease to US$32,993 million in 2024 was followed by a substantial increase to US$37,996 million in 2025, indicating ongoing investment in the business.

Economic Profit Trend

Economic profit mirrored the fluctuations in NOPAT and the increasing cost of capital. It rose from US$159 million in 2020 to US$1,872 million in 2022, demonstrating increasing value creation. The decline in 2023 to US$639 million reflects the impact of lower NOPAT and a higher cost of capital. A rebound to US$2,190 million in 2024 and further to US$2,257 million in 2025 suggests a return to strong value creation despite the continued increase in the cost of capital.

Overall, the period shows a business capable of generating increasing economic profit despite a rising cost of capital. The fluctuations in economic profit are closely tied to changes in NOPAT, highlighting the importance of maintaining and improving operational profitability. The continued growth in invested capital suggests a commitment to future expansion and value creation.

Net Income Attributable to Costco

The net income showed a consistent upward trend over the six-year period. Starting at 4,002 million USD, it increased steadily each year, reaching 8,099 million USD in the latest period. The largest year-over-year growth appeared from the 2023 to 2024 period, with an increase of approximately 1,075 million USD. Overall, net income approximately doubled from the first to the last reported year, reflecting strong profitability growth.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a generally increasing pattern as well, starting at 4,254 million USD in the earliest period and rising to 7,834 million USD in the most recent year. There was a slight deviation from the upward trend between 2022 and 2023, where NOPAT decreased from 6,421 million USD to 5,694 million USD before resuming growth. The recovery that followed saw a notable increase to 7,032 million USD and then to 7,834 million USD. This suggests a temporary operational challenge was overcome, leading to renewed profitability improvements.

General Observations

Both net income and NOPAT exhibited significant growth over the examined period, reinforcing a positive operational and financial trajectory. The temporary dip in NOPAT suggests some operational or cost-related challenges in the 2023 fiscal year, yet the strong rebound indicates effective management response or favorable market conditions. The steadier growth in net income compared to the fluctuating pattern of NOPAT could suggest impacts of non-operating factors or variations in tax effects during the period.

The financial data indicates a consistent upward trend in both the provision for income taxes and cash operating taxes over the analyzed period. This upward trajectory suggests increasing profitability or taxable income, requiring higher tax allocations.

Provision for Income Taxes

The provision for income taxes has increased from $1,308 million in 2020 to $2,719 million in 2025. This steady growth reflects a compounded annual increase, highlighting the company's growing tax liability over the years. The year-over-year increases range between approximately 17% to 24%, showing sustained expansion without volatility.

Cash Operating Taxes

Cash operating taxes also show a consistent rise from $1,246 million in 2020 to $2,750 million in 2025. Notably, cash operating taxes slightly exceed the provision for income taxes, which could indicate timing differences or tax payment strategies. The year-over-year growth in cash operational taxes aligns closely with the provision, reinforcing the narrative of increased cash outflows related to tax expenses.

Overall, the data reveals a parallel and proportionate increase in tax provisioning and payments, reflecting robust business performance and likely higher earnings. The absence of any decline or irregularity in these amounts suggests stable tax management and continuous financial growth throughout the period under review.

Total reported debt & leases

The total reported debt and leases exhibit a generally declining trend over the observed periods. Starting from approximately $11.1 billion, the amount slightly increased to around $11.4 billion in the second year, then consistently decreased in the subsequent years, reaching approximately $9.9 billion in the latest period. This suggests a gradual reduction in leverage or obligations related to debt and leases over time.

Total Costco stockholders’ equity

Stockholders' equity demonstrates significant growth across the years. There is an initial slight decline from about $18.3 billion to $17.6 billion, followed by a substantial increase to over $20.6 billion in the third period. This upward trajectory continues more markedly in the following years, reaching nearly $29.2 billion in the most recent period. The growth in equity indicates strengthening financial stability and retained earnings accumulation.

Invested capital

Invested capital shows a consistent upward trend, rising from approximately $29.0 billion at the beginning of the period to nearly $38.0 billion in the latest year. Despite a slight dip in one of the middle years, the general movement is positive, suggesting ongoing investment in the company's operations and assets. This increase in invested capital aligns with the growth observed in stockholders’ equity, reflecting expansion and reinvestment activities.

The economic spread ratio demonstrates considerable fluctuation over the observed period. Initially, the ratio stood at 0.55% in August 2020, indicating a modest spread between return on invested capital and the cost of capital. A substantial increase is then observed, with the ratio rising to 4.31% in August 2021, and continuing to 5.91% in August 2022. This suggests a significant improvement in the company’s ability to generate returns exceeding its cost of capital during these years.

However, a notable decline occurred in September 2023, with the economic spread ratio decreasing to 1.83%. This represents a considerable contraction in the spread, potentially signaling increased costs or reduced profitability. The ratio then rebounded strongly to 6.64% in September 2024, reaching its highest point in the observed period. A slight decrease to 5.94% is then seen in August 2025, though the ratio remains at a relatively high level.

Economic Spread Ratio Trend

The economic spread ratio exhibits a volatile pattern. The initial low value increased dramatically over two years, followed by a sharp decrease, and then a recovery to a high point before a minor decline. This suggests the company’s profitability relative to its capital costs is sensitive to external factors or internal operational changes.

Correspondingly, economic profit increased significantly from US$159 million in August 2020 to US$1,229 million in August 2021, and further to US$1,872 million in August 2022. The decrease in the economic spread ratio in September 2023 coincided with a reduction in economic profit to US$639 million. The subsequent increase in the economic spread ratio in September 2024 was accompanied by an increase in economic profit to US$2,190 million, and this trend continued into August 2025 with economic profit at US$2,257 million.

Invested Capital

Invested capital generally increased over the period, moving from US$29,043 million in August 2020 to US$37,996 million in August 2025. While there was a slight decrease from August 2020 to August 2021, the overall trend is upward, indicating continued investment in the business. The fluctuations in the economic spread ratio do not appear directly correlated with the overall increasing trend in invested capital.

The observed fluctuations in the economic spread ratio warrant further investigation to determine the underlying drivers. While the company demonstrates a capacity to generate substantial economic profit, the variability in the spread suggests potential vulnerabilities or sensitivities to changing economic conditions or internal strategic shifts.

The economic profit margin demonstrates significant fluctuation over the observed period. Initial values indicate a modest level of economic profitability, which then experiences substantial growth before declining and recovering. A detailed examination of the trends reveals key insights into the company’s performance.

Economic Profit Margin Trend

The economic profit margin began at 0.10% in August 2020. A considerable increase is then observed, reaching 0.64% in August 2021 and peaking at 0.84% in August 2022. A substantial decrease follows, with the margin falling to 0.27% in September 2023. Subsequently, the margin recovers to 0.88% in September 2024 and remains relatively stable at 0.84% in August 2025.

The period between 2020 and 2022 shows a strong positive trend in economic profit margin, suggesting improved efficiency in generating returns above the cost of capital. The sharp decline in 2023 warrants further investigation to determine the underlying causes, such as increased costs, decreased sales, or a higher cost of capital. The subsequent recovery in 2024 and stabilization in 2025 indicate a potential return to more sustainable profitability levels.

Relationship to Net Sales

While the economic profit margin fluctuated, net sales consistently increased throughout the period. Net sales grew from US$163,220 million in August 2020 to US$269,912 million in August 2025. The divergence between the increasing net sales and the fluctuating economic profit margin suggests that revenue growth alone does not guarantee improved economic profitability. Factors impacting the cost of generating those sales are also significant.

The observed pattern suggests that the company’s ability to translate sales growth into economic profit is not consistent. The period of margin decline coincided with continued sales growth, indicating potential challenges in maintaining profitability as the business scales. The recent recovery in economic profit margin, alongside continued sales growth, is a positive sign, but ongoing monitoring is crucial to ensure sustained economic value creation.