COST — Costco Wholesale Corp.

Will it survive?

• Can it pay its interest? 67.4×
  Comfortable
  Operating income $10.4B ÷ interest expense $154M

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient — it says solvent, not cheap.

• How heavy is the debt? 0.6×
  Conservative
  Total debt $5.8B ÷ operating income $10.4B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? —
  Not enough data

  The filing data didn't include the inputs for this check.

Is it a good business?

• Return on invested capital 37%
  Exceptional
  NOPAT $7.8B ÷ invested capital $20.8B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin 3%
  Thin
  Owner Earnings $7.8B = operating cash $13.3B − capex $5.5B

  What an owner could take out without starving the business. That's 3% of revenue. Treating stock comp as the real expense it is (less $860M of SBC) leaves $7.0B. Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 1.65×
  Cash-backed
  Cash from ops $13.3B ÷ net income $8.1B

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 39%
  Reinvests most of it
  Dividends + buybacks $3.1B ÷ Owner Earnings $7.8B

  Of $7.8B Owner Earnings, $3.1B (39%) went back to shareholders — $2.2B dividends, $903M buybacks. Net of $860M stock comp, the real buyback was about $43M. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway — or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.

• Investing or harvesting? 2.27×
  Expanding
  Capex $5.5B ÷ depreciation $2.4B

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability & moat — 2016–2025

A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says — judgments, not another chart of the numbers.

• Profitable years 10 of 10

  Never lost money over the record — the earnings stability Graham insisted on.

• Return on capital ≥ 15% 10 of 10 yrs

  A moat shows up as a high return on invested capital that holds year after year — not one good vintage.

• Operating margin 3% → 4%

  Margins held steady across the cycle.

• Reinvestment — incremental ROIC 69%

  Every extra dollar the company reinvested earned a high return — it is still compounding, not coasting on an old moat.

• Owner earnings growth +8%/yr

  Free cash to owners grew about 8% a year over the record.

• Worst year 2016 · 3.1% op. margin

  Stayed profitable even in its hardest year — the resilience that survives recessions.

• Share count +0.1%/yr

  Roughly flat share count — little dilution, little buyback.

• Dividend record rising

  Paid and raised the dividend across the record — the continuity Graham prized.