Costco Wholesale Corp. (NASDAQ:COST)

The financial performance, as measured by economic profit, demonstrates a generally positive trajectory over the analyzed period, though with some fluctuation. Net operating profit after taxes (NOPAT) increased from 2020 to 2022, experienced a decline in 2023, and then resumed growth through 2025. Simultaneously, the cost of capital consistently increased, while invested capital showed an overall upward trend with some intermediate variation.

Economic Profit Trend

Economic profit began at US$175 million in 2020 and increased substantially to US$1,245 million in 2021. This growth continued to US$1,889 million in 2022, representing the peak value within the observed timeframe. A decrease to US$658 million was noted in 2023, followed by a recovery to US$2,208 million in 2024 and a further increase to US$2,278 million in 2025. This suggests a strong underlying ability to generate returns exceeding the cost of capital, despite the temporary dip in 2023.

NOPAT Analysis

NOPAT increased from US$4,254 million in 2020 to US$5,292 million in 2021, and further to US$6,421 million in 2022. A decline to US$5,694 million occurred in 2023, before rebounding to US$7,032 million in 2024 and reaching US$7,834 million in 2025. The 2023 decrease in NOPAT likely contributed to the concurrent reduction in economic profit.

Cost of Capital Progression

The cost of capital exhibited a consistent upward trend, increasing from 14.05% in 2020 to 14.62% in 2024, where it remained stable through 2025. This increasing cost of capital presents a growing hurdle for generating positive economic profit, requiring higher NOPAT levels to maintain profitability.

Invested Capital Fluctuations

Invested capital decreased slightly from US$29,043 million in 2020 to US$28,508 million in 2021. It then increased to US$31,671 million in 2022, continued to US$34,903 million in 2023, decreased to US$32,993 million in 2024, and rose again to US$37,996 million in 2025. These fluctuations in invested capital, while generally trending upward, introduce a degree of complexity when assessing the efficiency of capital allocation.

Overall, the observed trends indicate a business capable of generating economic profit, although subject to external pressures such as a rising cost of capital and internal variations in NOPAT and invested capital. The sustained positive economic profit through 2025 suggests effective management of capital and operations, despite the challenges encountered in 2023.

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 significant fluctuation over the observed period. Initially, the ratio was 0.60% in August 2020, indicating a modest spread between return on invested capital and the cost of capital. A substantial increase is then observed, reaching 4.37% in August 2021, followed by a further rise to 5.96% in August 2022. This suggests a period of improving profitability relative to the capital employed. However, the ratio decreased to 1.88% in September 2023, representing a considerable decline from the previous year. A strong recovery is then evident, with the ratio increasing to 6.69% in September 2024, and remaining high at 6.00% in August 2025.

Economic Spread Ratio Trend

The economic spread ratio exhibits a volatile pattern. The initial increase from 2020 to 2022 suggests successful capital allocation and strong operational performance. The dip in 2023 warrants further investigation to determine the underlying causes, potentially related to increased costs, decreased revenue, or changes in the cost of capital. The subsequent rebound in 2024 and 2025 indicates a return to favorable conditions and effective capital utilization.

Economic profit also shows considerable variation. While it increased significantly from US$175 million in 2020 to US$1,889 million in 2022, it decreased to US$658 million in 2023 before recovering to US$2,208 million in 2024 and US$2,278 million in 2025. This movement in economic profit aligns with the fluctuations observed in the economic spread ratio.

Invested Capital

Invested capital generally increased over the period, rising from US$29,043 million in 2020 to US$37,996 million in 2025. The increase in invested capital, coupled with the fluctuating economic spread ratio, suggests that while the company has been reinvesting in its operations, the efficiency of capital deployment has varied year to year.

The correlation between the economic spread ratio and economic profit is strong. Periods of higher economic spread ratios correspond with higher economic profit, and vice versa. This reinforces the importance of maintaining a positive and expanding economic spread to drive value creation.

The economic profit margin demonstrates significant fluctuation over the observed period. Initial values indicate a relatively low margin, followed by substantial growth, a subsequent decline, and a recovery towards the end of the period.

Economic Profit Margin Trend

In August 2020, the economic profit margin stood at 0.11%. A considerable increase is then observed, reaching 0.65% in August 2021 and further expanding to 0.85% in August 2022. This represents a period of strong economic profit generation relative to net sales.

However, the margin experienced a notable decrease in September 2023, falling to 0.28%. This suggests a reduction in economic profitability despite continued growth in net sales.

Subsequently, the economic profit margin rebounded strongly, reaching 0.88% in September 2024. This upward trend continued into August 2025, with the margin stabilizing at 0.84%.

The economic profit itself mirrors this trend. While net sales consistently increased throughout the period, the economic profit margin’s volatility indicates that the efficiency with which sales translate into economic profit has varied. The peak margin in 2022 coincided with a substantial economic profit of US$1,889 million, while the dip in 2023 saw economic profit fall to US$658 million despite higher net sales.

Relationship to Net Sales

Net sales exhibited a consistent upward trajectory, increasing from US$163,220 million in 2020 to US$269,912 million in 2025. However, the economic profit margin’s fluctuations demonstrate that revenue growth alone does not guarantee improved economic profitability.

The recovery in economic profit margin in 2024 and 2025, despite continued sales growth, suggests improved cost management or operational efficiency during those periods.

The observed pattern suggests a sensitivity of economic profitability to factors beyond revenue generation, potentially including cost of capital, operating expenses, or asset utilization. Further investigation into these areas would be beneficial.