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) and invested capital both exhibit growth, while the cost of capital steadily increases. These factors combine to influence the overall economic profit generated.

NOPAT Trend

Net operating profit after taxes increased from US$4,254 million in 2020 to US$5,292 million in 2021, representing a substantial gain. Further growth was observed in 2022, reaching US$6,421 million. A slight decrease occurred in 2023, with NOPAT falling to US$5,694 million, before recovering to US$7,032 million in 2024 and continuing to rise to US$7,834 million in 2025. This indicates a generally upward trend in core operational profitability, with a temporary dip in 2023.

Cost of Capital Trend

The cost of capital experienced a consistent, albeit gradual, increase throughout the period. Starting at 12.40% in 2020, it rose to 12.53% in 2021, 12.63% in 2022, 12.73% in 2023, 12.89% in 2024, and stabilized at 12.90% in 2025. This suggests increasing financing costs over time.

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 significantly to US$31,671 million in 2022 and continued to grow to US$34,903 million in 2023. A slight decrease was noted in 2024, falling to US$32,993 million, followed by a further increase to US$37,996 million in 2025. This pattern suggests strategic investments and potential capital reallocation.

Economic Profit Trend

Economic profit demonstrated a positive trend overall. It began at US$653 million in 2020 and increased substantially to US$1,720 million in 2021, and further to US$2,422 million in 2022. A decrease was observed in 2023, with economic profit falling to US$1,251 million, likely influenced by the decrease in NOPAT and the increase in cost of capital. Economic profit then rebounded to US$2,778 million in 2024 and continued to grow to US$2,934 million in 2025, indicating a return to strong value creation.

The interplay between NOPAT, cost of capital, and invested capital results in fluctuating economic profit. While the cost of capital consistently increased, the growth in NOPAT and invested capital generally outweighed this effect, leading to overall positive economic profit and value creation. The dip in 2023 warrants further investigation to understand the underlying drivers of the NOPAT decline.

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 increased significantly before stabilizing and then increasing again. Economic profit exhibited a similar pattern of growth, decline, and subsequent recovery, while invested capital generally trended upward.

Economic Spread Ratio

The economic spread ratio began at 2.25% in August 2020 and rose substantially to 6.03% by August 2021, indicating a significant improvement in returns relative to the cost of capital. This upward momentum continued, reaching a peak of 7.65% in August 2022. A notable decrease followed, with the ratio falling to 3.58% in September 2023. However, the ratio rebounded strongly to 8.42% in September 2024, and remained high at 7.72% in August 2025, suggesting a sustained period of strong economic performance.

Economic Profit

Economic profit mirrored the trend of the economic spread ratio. It increased from US$653 million in August 2020 to US$1,720 million in August 2021, and further to US$2,422 million in August 2022. A decline was then observed, with economic profit decreasing to US$1,251 million in September 2023. Subsequently, economic profit increased to US$2,778 million in September 2024 and continued to rise to US$2,934 million in August 2025.

Invested Capital

Invested capital generally increased throughout the period. From US$29,043 million in August 2020, it decreased slightly to US$28,508 million in August 2021, before rising to US$31,671 million in August 2022. Further increases were observed in September 2023 (US$34,903 million) and September 2024 (US$32,993 million), culminating in US$37,996 million in August 2025. The fluctuations in invested capital appear less pronounced than those observed in economic profit and the economic spread ratio.

The observed correlation between the economic spread ratio and economic profit suggests that changes in profitability are directly reflected in the ratio. The increase in invested capital alongside the fluctuating economic spread ratio indicates that the entity continues to deploy capital, with varying degrees of success in generating returns exceeding the cost of that capital.

The economic profit margin exhibited considerable fluctuation over the observed period. Initial values demonstrate growth, followed by a decline, and subsequent recovery, indicating a dynamic relationship between profitability and sales.

Economic Profit Margin Trend

The economic profit margin began at 0.40% in August 2020 and increased significantly to 0.90% in August 2021. This growth continued into August 2022, reaching a peak of 1.09%. A substantial decrease was then observed in September 2023, with the margin falling to 0.53%. The margin rebounded to 1.11% in September 2024 and remained relatively stable at 1.09% in August 2025.

Economic profit itself demonstrated an overall upward trend, despite the fluctuation in the economic profit margin. The initial value of US$653 million in August 2020 grew to US$2,934 million by August 2025. This suggests that while the efficiency of generating profit from each dollar of sales varied, the absolute profit generated increased over time.

Relationship between Net Sales and Economic Profit Margin

Net sales consistently increased throughout the period, moving from US$163,220 million to US$269,912 million. The decline in economic profit margin in September 2023 occurred alongside a continued increase in net sales, suggesting that the increase in sales did not translate into a proportional increase in economic profit. The subsequent recovery of the margin in September 2024 and August 2025 coincided with continued sales growth, indicating a restoration of profitability efficiency.

The observed pattern suggests a sensitivity of the economic profit margin to factors beyond simple sales volume. These factors could include changes in the cost of capital, operational efficiency, or pricing strategies. The stabilization of the margin in the final two periods indicates a potential normalization of these influencing factors.