Costco Wholesale: Company Overview Costco Wholesale is a membership-based warehouse retailer that combines steady per-share top-line and bottom-line growth with strong cash generation and historically high returns on equity. Growth Trends and Earnings Quality The company shows durable growth: five‑year diluted EPS CAGR is 13.94% and five‑year revenue‑per‑share CAGR is 9.44% , with most recent dilu
Costco Wholesale is a membership-based warehouse retailer that combines steady per-share top-line and bottom-line growth with strong cash generation and historically high returns on equity.
The company shows durable growth: five‑year diluted EPS CAGR is 13.94% and five‑year revenue‑per‑share CAGR is 9.44%, with most recent diluted EPS growth around 9.6% (period end 2025‑11‑23) and revenue‑per‑share growth about 8.2% (period end 2025‑08‑31) — see EPS Diluted & Revenue per Share. Earnings quality is notable: trailing twelve‑month operating cash flow reached $15.01B versus net income TTM of $8.30B, with operating cash flow exceeding net income (operating cash flow / net income ≈ 1.78) and an average cash conversion ratio of 1.6453, supporting free cash generation and reinvestment; refer to Strategic Capital Allocation and Earnings Quality Analysis. Capital structure is conservative with interest coverage near 70x and debt‑to‑equity around 0.18, while trailing‑twelve‑month ROE remains high at 27.4% after multi‑year expansion — see Return on Equity (ROE).
Areas of genuine concern include margin volatility and recent compression: gross margin dropped to 11.1% and operating margin fell sharply to 1.8% in the most recent 2026‑02‑15 quarter versus historical gross margin roughly 12.1–12.9% and operating margin near mid‑3% earlier in 2025; see Profit Margin Trends. Valuation reflects high expectations, with a most recent P/E around 47.5x and a 2025 peak near 61.6x, which leaves little margin for error if growth or margins slow — see Price-to-Earnings (PE) Ratio Trend. ROE has also shown a modest downtrend across recent quarters (29.8% → 27.4%), and a reported negative ROE growth metric of about -11.58% signals the need to monitor returns closely.
The foundation of business quality and long-term value creation
COSTCO WHOLESALE CORP /NEW's revenue series shows pronounced quarter-to-quarter variation with several pronounced peaks in the late-summer/early-fall period (examples: $149.88B on 2025-08-31, $79.70B on 2024-09-01, $78.94B on 2023-09-03). In the most recent reporting sequence the company has a revenue entry of $0 for the period ending 2026-02-15, preceded by $67.31B for the period ending 2025-11-23, indicating a sharp sequential decline from the prior quarter peak.
Net income has fluctuated alongside revenue but with less extreme proportional swings; recent net income figures were $2.61B (2025-08-31), $1.90B (2025-05-11) and $2.00B (2025-11-23), showing peaks near the same late-summer quarters and a $2.00B result in the most recent non-zero report. The most recent reported revenue was $0 (period end 2026-02-15) and the most recent reported net income was $2.00B (period end 2025-11-23).
Why Growth Matters
Consistent revenue and earnings growth are the lifeblood of successful long-term investments. Companies that can grow their top line (revenue) and bottom line (net income) over many years demonstrate they have products or services customers value and are willing to pay for repeatedly.
Revenue Growth shows whether the company is expanding its market reach, gaining market share, or successfully launching new products.Net Income Growth demonstrates the company can convert that revenue into actual profits while managing costs effectively.
Look for steady, sustainable growth rather than erratic spikes. The best businesses compound earnings year after year, creating tremendous value for shareholders over time. Companies that can grow earnings faster than revenue are improving their profitability—a sign of operational excellence and competitive strength.
Year-over-year growth rates for revenue and earnings per share
Reading the Growth Rate Chart
This chart converts the absolute per-share figures into year-over-year percentage changes, making it easy to see whether growth is accelerating, decelerating, or reverting to trend — regardless of the company's absolute size.
Revenue per Share Growth (1-year, split-adjusted) measures how quickly the top line is expanding on a per-share basis. Sustained positive growth signals that the company continues to win customers and grow its addressable market.EPS Diluted Growth (1-year, split-adjusted) measures how quickly earnings are compounding for each shareholder. When EPS growth consistently outpaces revenue growth, operating leverage and margin expansion are at work.
Look for consistency, not just magnitude. A company that reliably grows EPS 10–15% per year is far more valuable than one that alternates between 50% spikes and deep contractions. Negative EPS growth during a period of positive revenue growth is a red flag — costs are rising faster than sales. Quarters where both lines converge near zero or go negative deserve close scrutiny.
How revenue converts to net income for the most recent annual period
Period Information
Report Type: Annual (10-K)
Period: Feb 2025 to Feb 2026
Revenue composition by disclosure category for the latest period
Analyzing long-term margin stability and competitive positioning
COSTCO WHOLESALE CORP /NEW’s gross margin has been in a fairly narrow band around 12–13% for much of the 2020–2025 period, peaking near 13.2% in late 2020 and holding roughly 12.1–12.9% through 2021–2025. In the most recent quarter (period ending 2026-02-15) the gross margin decreased to 11.1%, marking a move below the prior multi-year range.
Operating margin historically sat around the mid-3% range (roughly 3.3–3.8%) through 2022–2025 but shows a sharp drop to 1.8% in the latest 2026-02-15 quarter; the immediate prior quarter with complete metrics (2025-08-31) reported a 3.8% operating margin.
Reported net profit margin values are intermittent in the series but generally ranged from about 2.4–2.9%; the most recent reported net margin is 2.9% (period ending 2025-08-31).
Understanding Profit Margins
Between Feb 2025 and Feb 2026, Costco Wholesale Corp New converts every dollar of revenue through the following stages:
Sustainable competitive advantages reveal themselves through consistently superior profit margins over extended periods. Companies with durable economic moats maintain pricing power and operational efficiency that competitors struggle to match.
A sign of durable competitive advantage is earning sustained higher margins than competitors.Look for margins that remain stable or improve over time, especially during economic downturns. Declining margins may signal increasing competition, pricing pressure, or deteriorating business fundamentals.
Comparing reported earnings to actual cash generation
Over the past several quarters, COSTCO WHOLESALE CORP /NEW shows a steady rise in trailing twelve‑month operating cash flow while trailing twelve‑month net income has increased more modestly. Operating cash flow climbed from $11.96B (2025-02-16) to $12.43B (2025-05-11), $13.34B (2025-08-31), $14.76B (2025-11-23) and $15.01B (2026-02-15). Net income moved from $7.62B (2025-02-16) to $7.84B (2025-05-11), $8.10B (2025-08-31) and $8.30B (2025-11-23).
The key trend is consistent operating cash flow exceeding reported net income, with the absolute gap widening in the most recent data points. The most recent Net Income (TTM) was $8.30B. The most recent Operating Cash Flow (TTM) was $15.01B.
The Earnings vs. Cash Flow Gap
Reported earnings (Net Income) doesn't always reflect actual cash generation. Companies use accrual accounting, which recognizes revenue when earned and expenses when incurred—not when cash actually changes hands. This creates timing differences and opportunities for accounting discretion that can mask underlying business health.
Net Income (the "earnings" number) can be influenced by non-cash items like depreciation, stock-based compensation, and changes in accounting estimates.Operating Cash Flow, however, shows the actual cash the business generates from its core operations—a harder number to manipulate.
What to Look For
Key Insight: Companies with durable competitive advantages typically show operating cash flow that meets or exceeds net income over time, demonstrating they convert accounting profits into actual cash that can be returned to shareholders or reinvested in the business.
Measuring management's efficiency at generating profits from shareholder capital
COSTCO WHOLESALE CORP /NEW’s trailing twelve-month Return on Equity rose from low double-digits in the early 2010s into the mid-to-high 20% range by the mid-2010s and reached the low 30% area in 2024. A notable inflection occurred in late 2023 when ROE dropped to 24.9% (period end 2023-11-26), followed by a sharp rebound into the 32.7–32.9% range through early-to-mid 2024. After that peak, ROE has trended downward across 2024–2025.
Over the most recent four reported quarters the series shows a sequential decline: 29.8% (2025-02-16), 28.9% (2025-05-11), 27.8% (2025-08-31) and 27.4% (2025-11-23). The most recent trailing twelve-month Return on Equity was 27.4% as of period end 2025-11-23.
The Gold Standard of Profitability
Return on Equity (ROE) is a powerful measure of how effectively a company's management is using the money shareholders have invested. Calculated by dividing Net Income by Shareholders' Equity, it reveals how much profit is generated for every dollar of equity capital.
A consistently high ROE (typically above 15-20%) is often the signature of a "quality" business with a durable competitive advantage. It indicates that the company can generate high returns on its own capital, which it can then reinvest at these high rates to compound value over time.
What to Look For:
How the company generates and deploys its cash
COSTCO WHOLESALE CORP /NEW’s trailing‑twelve‑month operating cash flow has trended upward in recent quarters, rising from $9.95B at 2024‑11‑24 to $14.76B at 2025‑11‑23 and reaching $15.01B at 2026‑02‑15. The longer history shows steady growth from roughly $6.74B–$10.65B in 2021–2023 into the $11B–$15B range more recently, with the largest incremental increases occurring across the 2024–2026 period.
Investing cash flow has been consistently negative and gradually more outflow‑heavy, moving from about -$3.32B in 2021‑05‑09 to -$5.87B at 2026‑02‑15. Financing cash flow shows larger variability: very large negative outflows near -$10.98B and -$10.76B at 2024‑11‑24 and 2024‑09‑01 respectively, then moderating to smaller negative outflows around -$3.75B–-$4.24B in the most recent quarters. The most recent trailing twelve‑month values are: Operating Cash Flow $15.01B, Investing Cash Flow -$5.87B, Financing Cash Flow -$4.24B.
Understanding Company Strategy
Capital allocation refers to how management decides to spend and invest the company's cash. Analyzing the three primary categories of cash flow reveals a company's true operational strategy:
What to look for: Is the company bootstrapping (funding growth solely from operating cash)? Are they borrowing to fund aggressive expansion or dividends? Or are they capital raising by issuing new shares, potentially diluting your ownership? A healthy, mature company typically generates strong operating cash, moderately invests in growth, and returns the surplus to shareholders through financing activities.
Net assets attributable to each share — the accounting floor of intrinsic value
Why Book Value per Share Matters
Book value per share is the net worth of the company — total assets minus total liabilities — divided by shares outstanding (split-adjusted). It represents the theoretical liquidation value per share if every asset were sold and every liability repaid at balance-sheet carrying values. It is the accounting foundation upon which much of equity valuation is built.
A steadily rising book value per share is one of the most reliable signals of compounding wealth creation. It means the company is retaining earnings and building net worth faster than it is returning capital or eroding it. Warren Buffett famously tracked Berkshire Hathaway's book value per share for decades as his primary measure of intrinsic value growth.
Context is essential. Asset-heavy businesses (banks, manufacturers, utilities) should be judged by book value more directly than asset-light businesses (software, consumer brands), where intangible assets like intellectual property and customer loyalty may far exceed their balance-sheet carrying values. A company trading at a large premium to book value is not necessarily overvalued — it may simply possess competitive advantages that accounting rules do not capture. Conversely, a declining book value per share — especially over multiple years — is a serious warning sign of capital destruction.
How much of the company is financed by debt versus shareholders' equity
Reading the Debt-to-Equity Ratio
The debt-to-equity (D/E) ratio compares total financial debt to shareholders' equity. A ratio of 1.0 means the company has borrowed one dollar for every dollar of equity; a ratio of 2.0 means it has borrowed twice as much as it owns. Financial leverage amplifies both returns and risk: in good times, debt turbocharges equity returns; in bad times, it accelerates losses and can threaten solvency.
Trends matter more than a single number. A rising D/E ratio can mean the company is taking on debt to fund growth — potentially value-creating if returns exceed the cost of capital. But it can also mean equity is being eroded through losses or that the business is borrowing simply to sustain operations. A falling D/E ratio generally reflects strengthening financial health: earnings are being retained, debt maturities are being paid down, or both.
Industry norms vary enormously. Capital-intensive sectors (utilities, real estate, financials) routinely carry high D/E ratios that would be alarming in, say, a technology company. Always compare against sector peers. As a rough rule of thumb, a D/E above 2× in a cyclical business warrants careful scrutiny of interest coverage and refinancing risk.
Short-term liquidity — can the company cover its near-term obligations?
Liquidity: Can the Business Pay Its Bills?
The current ratio is calculated as current assets divided by current liabilities. A ratio of 1.5 means the company has $1.50 of short-term assets — cash, receivables, inventory — for every $1.00 of obligations due within the next twelve months. It is the most direct measure of near-term financial resilience: can the business meet its obligations without needing to raise new capital or sell long-term assets at a discount?
A ratio above 1.0 is generally healthy, meaning current assets exceed current liabilities. A ratio consistently above 2.0 may indicate the company is holding excess cash or inventory that could be deployed more productively. A ratio below 1.0 is a warning sign — the company is relying on future cash generation or external financing to cover its near-term obligations, which is manageable in normal conditions but dangerous during a downturn.
Trends and context matter.A declining current ratio isn't always alarming — highly efficient businesses (e.g., large retailers with reliable daily cash flows) often run leaner balance sheets intentionally. Conversely, a rapidly rising current ratio can signal slowing sales causing inventory to build, or customers taking longer to pay. Always compare the trend against industry peers and cross-reference with the cash flow statement to assess whether the business is genuinely liquid or just holding non-cash current assets.
How much the market is paying for each dollar of company earnings
For COSTCO WHOLESALE CORP /NEW, the P/E ratio climbed through 2024 into early 2025, rising from 47.5x (2024-02-18) to a peak of 61.6x on 2025-02-16. After that peak the ratio contracted through mid- and late-2025, moving to 57.6x (2025-05-11), 51.6x (2025-08-31) and back down to 47.5x in the most recent quarter.
Over the longer term the P/E expanded from the low 20s in the early 2010s into the 30s and 40s through the latter half of the 2010s and early 2020s, with the 61.6x reading in 2025-02-16 representing the series high. The most recent Price-to-Earnings ratio observed was 47.5x for the period ending 2025-11-23.
What Is the PE Ratio?
The Price-to-Earnings (PE) ratio is one of the most widely used valuation metrics in investing. It divides the current stock price by the company's earnings per share (EPS), revealing how much investors are willing to pay for each dollar of earnings. A high PE can signal that the market expects strong future growth, while a low PE may suggest undervaluation—or reflect genuine concerns about the company's prospects.
Context matters:PE ratios vary significantly across industries. High-growth technology companies routinely trade at PE ratios above 30x or 40x, while mature, low-growth sectors like utilities or financials often trade closer to 10–15x. Always compare a company's PE to its own history and its industry peers, not just an absolute number.
What to Look For:
Key Insight:The PE ratio is a snapshot of market sentiment and expectations. Tracking it over time alongside earnings trends reveals whether the market's valuation has expanded or contracted—and whether that change is justified by fundamentals.