e statements for Costco Wholesale Corporation follow. Costco Wholesale Corporation Consolidated Statements of Earnings For Fiscal Years Ended ($ millions) September 2, 2018 Total revenue $141,576 Operating expenses Merchandise costs 123,152 Selling, general and administrative 13,876 Preopening expenses
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Analysis and Interpretation of Profitability
Balance sheets and income statements for Costco Wholesale Corporation follow.
| Costco Wholesale Corporation | |
|---|---|
| Consolidated Statements of Earnings | |
| For Fiscal Years Ended ($ millions) | September 2, 2018 |
| Total revenue | $141,576 |
| Operating expenses | |
| Merchandise costs | 123,152 |
| Selling, general and administrative | 13,876 |
| Preopening expenses | 68 |
| Operating Income | 4,480 |
| Other income (expense) | |
| Interest expense | 159 |
| Interest income and other, net | (121) |
| Income before income taxes | 4,442 |
| Provision for income taxes | 1,263 |
| Net income including noncontrolling interests | 3,179 |
| Net income attributable to noncontrolling interests | (45) |
| Net income attributable to Costco | $3,134 |
| Costco Wholesale Corporation | ||
|---|---|---|
| Consolidated Balance Sheets | ||
| ($ millions, except par value and share data) | September 2, 2018 | September 3, 2017 |
| Current assets | ||
| Cash and cash equivalents | $6,055 | $4,546 |
| Short-term investments | 1,204 | 1,233 |
| Receivables, net | 1,669 | 1,432 |
| Merchandise inventories | 11,040 | 9,834 |
| Other current assets | 321 | 272 |
| Total current assets | 20,289 | 17,317 |
| Net property and equipment | 19,681 | 18,161 |
| Other assets | 860 | 869 |
| Total assets | $40,830 | $36,347 |
| Current liabilities | ||
| Accounts payable | $11,237 | $9,608 |
| Accrued salaries and benefits | 2,994 | 2,703 |
| Accrued member rewards | 1,057 | 961 |
| Deferred membership fees | 1,624 | 1,498 |
| Other current liabilities | 3,014 | 2,725 |
| Total current liabilities | 19,926 | 17,495 |
| Long-term debt | 6,487 | 6,573 |
| Other liabilities | 1,314 | 1,200 |
| Total liabilities | 27,727 | 25,268 |
| Equity | ||
| 0 | 0 | |
| Common stock, $0.01 par value: | 4 | 4 |
| Additional paid-in-capital | 6,107 | 5,800 |
| Accumulated other comprehensive loss | (1,199) | (1,014) |
| 7,887 | 5,988 | |
| Total Costco |
12,799 | 10,778 |
| Noncontrolling interests | 304 | 301 |
| Total equity | 13,103 | 11,079 |
| Total liabilities and equity | $40,830 | $36,347 |
a) Compute Net Non Operating Obligation (NNO) for 2018 and 2017 and Confirm NOA = NNO + Total Equity
b) Infer the nonoperating return component of ROE for 2018.
c) Coment on the difference between ROE and RNOA. what does this relation suggest about costco's use of equity capital
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