Direct Computation of Nonoperating Return with Noncontrolling Interest 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 $7,091$

Preopening expenses $68$

Operating Income $11,265$

Other $($income$)$ expense

Interest expense $81$

Interest income and other, net $(121)$

Income before income taxes $11,305$

Provision for income taxes $1,263$

Net income including noncontrolling interests $10,042$

Net income attributable to noncontrolling interests $(23)$

Net income attributable to Costco $$10,019$

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 $$3,094$ $$4,546$

Short$-$term investments $1,2041,233$

Receivables, net $1,669732$

Merchandise inventories $11,0409,834$

Other current assets $164272$

Total current assets $17,17116,617$

Net property and equipment $19,68118,161$

Other assets $860444$

Total assets $$37\mathrm{.}712$ $$35,222$

Current liabilities

Accounts payable

$$11,237$

$$9,608$

Accrued salaries and benefits $1,5301,381$

Accrued member rewards $1,057961$

Deferred membership fees $8301,498$

Other current liabilities $3,0141,392$

Total current liabilities $17,66814,840$

Long$-$term debt $3,3156,573$

Other liabilities $1,3141,200$

Total liabilities $22,29722,613$

Equity

Preferred stock, $$0\mathrm{.}01$ par value:

Common stock, $$0\mathrm{.}01$ par value: $44$

Additional paid$-$in$-$capital $8,5687,330$

Accumulated other comprehensive loss $(1,199)(1,014)$

Retained earnings

$7,887$

$5,988$

Total Costco stockholders' equity $15,26012,308$

Noncontrolling interests $155301$

Total equity $15,41512,609$

Total liabilities and equity $$37,712$ $$35,222$

Combined federal and state statutory tax rate $22\mathrm{.}00\%$

ROE $72\mathrm{.}69\%$

RNOA $71\mathrm{.}93\%$

$*$

$*$Compute net nonoperating expense $($NNE$)$ and net operating profit after tax $($NOPAT$).$NNE$40$ x$$NOPAT$10,002$ x

$*$Compute net nonoperating obligations $($NNO$)$ for $2018$ and $2017.$

Year

$2018$ $

$2017$ $

NNO

$983$ x

$795$

c$.$ Compute financial leverage $($FLEV$).$

Numerator

Average net nonoperating obligations $($NNO$)$

Average equity

$1,380$ x $

Denominator

d$.$ Compute NEP and Spread.$$Numerator

Average nonoperating liabilities

Denominator

$->$ sverage assets

$40$ x $

RNOA $($given$)$

$71\mathrm{.}93\%$

NNEP

Spread

$0\mathrm{.}27\%$ x

$71\mathrm{.}66\%$

e$.$ Compute the noncontrolling interest ratio $($NCI ratio$).$Numerator$10,042$ x

Denominator

$36,467$ x

NCI ratio

$0\mathrm{.}28$

f$.$ Confirm the relation: ROE $=[$RNOA $+($FLEV x Spread$)]\backslash$times NCI ratio.

$***$ROE may be different due to rounding