How to Read Financial Statements for Stocks, Using Costco's 2026 10-K

Figures from Costco's fiscal 2026 Form 10-K, filed October 7, 2026, checked against the filing on October 17, 2026.

If you only have ten minutes with a company's annual report, these five numbers tell you the most.

1. Is revenue growing? Compare this year's top line with last year's on the income statement.
2. Is the company profitable, and by how much per share? Read net income, then earnings per share (EPS).
3. Did the profit arrive as cash? Compare operating cash flow on the cash flow statement with net income.
4. How much cash sits next to its debt? Set cash against debt on the balance sheet. It is a first look, not a full liquidity test; the balance sheet section below goes further.
5. Is the share count stable? If the company's outstanding shares keep rising, your slice of each dollar of profit shrinks.

Here is how Costco's fiscal 2026, the 52 weeks that ended August 30, 2026, answers all five, in the table below. The 10-K reports in millions; we converted to billions.

Every U.S.-based public company files an annual report called a Form 10-K with the Securities and Exchange Commission. It is free on the SEC's EDGAR database: search the company name or ticker, filter for "10-K", and open the main document. Costco's fiscal 2026 10-K was filed on October 7, 2026, under accession number 0000909832-26-000093 (the 10-K itself and its filing index, both on sec.gov).

A 10-K is long, but you only need three parts to start:

• Item 1, Business (from page 3). What the company sells and how. For Costco, this is where the membership counts live.
• Item 7, Management's Discussion and Analysis, or MD&A (from page 23). Management explains, in words, why the numbers moved.
• Item 8, Financial Statements (from page 33). The audited numbers. Costco's income statement is on page 37, the balance sheet on page 39, the statement of equity on page 40 and the cash flow statement on page 41.

Page numbers differ in every company's 10-K. To find the statements in any filing, search the document for "Consolidated Statements of" or "Consolidated Balance Sheets". Companies also file a shorter quarterly report, the 10-Q, usually alongside their earnings report, with the same statements covering the latest quarter; it is unaudited, but newer than the last 10-K.

An outside firm audits the statements (KPMG, for Costco), and the notes after them explain how each number was counted. Our guide to fundamental analysis covers what analysts do with the numbers. This post sticks to reading them.

The income statement answers one question: over the year, did the company make or lose money? Read it top to bottom: most lines subtract a cost from the line above, until you reach net income. The full statement, converted into cents per dollar of revenue, is in the table at the end of this section.

Where each dollar of Costco's $303.2 billion fiscal 2026 revenue went, from the income statement on page 37 of the 10-K. Rounded to one decimal. Illustrative, not advice.

Costco's net income was $9.2 billion, about 3 cents of every revenue dollar. That 3-cent figure is the net profit margin, and it is thin by design. Costco's 10-K (page 3) says low prices and fast-moving inventory let it "operate profitably at significantly lower gross margins" than most retailers. Costco measures gross margin on net sales only, because membership fees have no goods attached: net sales minus merchandise costs is $33.0 billion, or 11.09% of net sales. The catch with a thin margin: small cost changes move the bottom line a lot.

Read three years, not one: the 10-K prints three columns, and Costco's revenue went from $254.5 billion (2024) to $275.2 billion (2025) to $303.2 billion (2026). Then check what drove the change. The MD&A (page 25) says higher gasoline prices added $3.5 billion to net sales, which is different from more people shopping.

Membership fees are the smallest line in Costco's revenue: $5.9 billion out of $303.2 billion, under 2 cents per dollar. Now set them next to the bottom line. Membership fees of $5.9 billion equal 64% of Costco's $9.2 billion of net income.

The comparison is loose, since fees are revenue and net income is what is left after every cost. But the fee has no merchandise cost attached: there is no box of cereal to buy before Costco can collect it.

Membership fees ($5.9 billion) next to net income ($9.2 billion), fiscal 2026. Both from the 10-K's income statement; the 64% is a StockCram calculation. Illustrative, not advice.

The Business section (page 5) gives the numbers behind the fee line:

• 84.1 million paid members at the end of fiscal 2026, up from 81.0 million.
• $65 a year for a basic U.S. membership; Executive members pay more.
• Renewal rate of 92.3% in the United States and Canada, and 89.8% worldwide.

Divide $5,907 million of fees by 84.1 million paid members and you get about $70 per member. Treat that as rough. About half of paid members (42.3 million) are Executive members who pay more, fees vary by country, fees are counted over the membership year, and the count includes some recently expired memberships. What matters is the scale, tens of millions of households paying a yearly fee before they buy anything.

A stock is a slice of the company, so a stock reader usually turns company-sized numbers into per-share numbers. That is what earnings per share does.

Costco's 10-K does the division for you: net income of $9.2 billion spread over 444.4 million diluted shares is $20.76 of diluted EPS, up 14% from $18.21. "Diluted" counts shares that could be created from stock awards, so it is the slightly more cautious figure. It is also an average over the year, which is why it differs from the 443.3 million shares outstanding on the balance sheet's closing date. You can check that arithmetic yourself in the EPS calculator below: enter $9,226 million of net income and 444.4 million shares.

The statements stop there, because they never mention the share price. The P/E ratio brings in the price: share price divided by EPS. It tells you how many dollars the market is paying for each dollar of yearly profit.

Here is the method with a made-up round number chosen for easy math, not Costco's actual price: if a share cost $1,000, the P/E would be $1,000 ÷ $20.76, about 48. Our P/E ratio calculator does the division with whatever price you put in. A P/E is a snapshot of price, so it changes every trading day, while the EPS only changes when a new quarterly or annual report comes out. Once quarterly reports (10-Qs) arrive, many sources use the latest four quarters of EPS, called trailing twelve months, instead of the fiscal-year figure.

What a given P/E means is a judgement about the future that the statements cannot make for you. Our guide what is a P/E ratio covers how people compare P/E ratios, and the value investing basics lesson shows how one school of investors uses them.

The balance sheet is a photo taken on one day, here August 30, 2026. It lists what the company owns (assets), what it owes (liabilities), and the difference (shareholders' equity). The two sides always match: Costco's $89.0 billion of assets equal $53.2 billion of liabilities plus $35.8 billion of equity.

Two things to read on it, plus a third in the next section:

Cash against debt. Costco held $20.2 billion of cash and cash equivalents (cash equivalents are very safe, very short-term holdings such as money market funds). Its debt was about $6.2 billion: $3.91 billion of long-term debt plus $2.25 billion due within a year. That figure leaves out leases ($1.4 billion of finance leases and $2.6 billion of operating leases, broken out in Note 5 on page 53), which some sources count as debt; that is one reason "debt" differs from site to site. Excluding leases, debt is about 17 cents for every dollar of equity, a debt-to-equity ratio of 0.17. Cash well above debt is also one sign of liquidity, the ability to pay bills as they come due.

Equity per share. $35.8 billion of equity over 443.3 million shares is about $80.77 per share, the company's book value per share. Compare that with the share price and you get price-to-book. For a business whose value comes from members and sales more than buildings, book value is a weak guide to what the market pays.

On Costco's balance sheet, merchandise inventories were $19.3 billion on August 30, 2026. Accounts payable, the bills it owed to suppliers, were $22.6 billion. So Costco owed suppliers $3.3 billion more than the goods on its shelves cost.

The 10-K explains it in one sentence on page 3: "We often sell inventory before we are required to pay for it." A pallet of paper towels can arrive, sell out and be paid for by members before the supplier's invoice is due.

That pattern changes how you read a common ratio. The current ratio is current assets divided by current liabilities: $46.6 billion ÷ $44.0 billion, about 1.06. For a manufacturer that has to pay for parts long before it sells a product, a ratio that low could mean cash is tight. For a retailer whose stock sells before the bills fall due, it is how the model works.

The same fact shows up on the cash flow statement, where the growth in money owed to suppliers added $2.8 billion of cash in fiscal 2026.

Net income includes costs not paid in cash this year, like depreciation, and ignores cash tied up in unsold goods. The cash flow statement tracks the cash itself, in three parts.

Operating activities: $15.8 billion. Costco's operating cash flow was 1.7 times its net income. The statement shows why. It starts at $9.2 billion of net income, adds back $2.7 billion of depreciation, subtracts $1.2 billion for extra inventory, adds $2.8 billion because the bills owed to suppliers grew, and adds about $2.3 billion of stock-based pay and smaller items. The $2.8 billion is the supplier pattern from the balance sheet, showing up as cash.

Investing activities: $6.4 billion of capital spending, filed as "Additions to property and equipment", $6,435 million. This is money spent on new warehouses, equipment and systems, called capex. Costco opened 28 new warehouses in fiscal 2026, including three relocations (MD&A, page 25).

Financing activities. Costco paid $2.5 billion of dividends (our dividend investing for beginners post explains how those payments reach shareholders) and spent $0.8 billion on stock buybacks.

Operating cash flow minus capex is a common, simple version of free cash flow: $15.8 billion minus $6.4 billion is $9.4 billion, or about $21.11 per diluted share. Free cash flow is not a line in the filing; it is a calculation people make from it.

When net income rises but operating cash flow falls, find out why before anything else. Sometimes it is harmless, like a planned inventory build. Sometimes it means cash is stuck in unpaid bills or unsold stock.

The three statements describe the same year, and you can check that with Costco's own numbers. The link is retained earnings: the running total of all the profit a company has kept over its life instead of paying out. It sits in the equity part of the balance sheet, and the statement of equity on page 40 shows how it changed during the year.

Retained earnings tie-out. Costco started the year with $22,650 million of retained earnings, added $9,226 million of net income, and subtracted $2,458 million of dividends and $827 million of buybacks. That leaves $28,591 million, the exact figure on this year's balance sheet. The table at the end of this section lays out each step.

The profit from the income statement flows into the balance sheet's equity, less what went back to shareholders.

Cash tie-out. The cash flow statement says cash rose by $6,046 million during the year. Add that to the $14,161 million Costco started with and you get $20,207 million, the exact cash figure on the balance sheet.

If your numbers tie out, you are reading the right columns. If they don't, you have usually picked up the wrong column or year, a common beginner mistake with a 10-K.

The statements are tables. The notes that follow them, starting on page 42 of Costco's 10-K, say how each number was counted, and some figures only make sense once you read them. Three examples from this filing:

Membership fees are counted over the year, not on the day they are paid. Note 1 (page 48) says Costco records fee revenue "ratably over the one-year membership period." A member who renews in June has paid for months that fall in the next fiscal year, so that part of the cash waits on the balance sheet as a liability called deferred membership fees: $3,006 million on August 30, 2026, up from $2,854 million a year earlier.

Buybacks are split across two equity lines. Costco bought back 891,000 shares for $847 million in fiscal 2026. The statement of equity charges $827 million of that to retained earnings and $20 million to additional paid-in capital, the allocation Note 1 (page 50) describes. That is why the tie-out above uses $827 million, not $847 million.

Most leases are folded into other lines. Note 5 (page 53) shows $4.0 billion of lease liabilities, $1.4 billion finance and $2.6 billion operating. Only the $2.4 billion of long-term operating leases gets its own balance-sheet line; the other $1.6 billion is folded into other current and other long-term liabilities. Whether you count them as debt changes the debt-to-equity ratio.

When a number surprises you, search the notes for its line name before drawing any conclusion from it.

Ratios turn raw numbers into figures you can compare. Every ratio in the table at the end of this section uses only numbers printed in the 10-K, so you can redo each one. Where a ratio divides a full-year figure by a balance-sheet figure (return on equity, return on assets, inventory turnover), we average the 2025 and 2026 year-end balances, a common convention. The other balance-sheet ratios use August 30, 2026 figures.

• Compare a ratio with the same company's earlier years and with similar businesses. A 3% net margin is normal for a warehouse retailer and would be very low for a software company.
• Return on equity of 28.4% is high partly because Costco's equity is small next to its sales: a company that runs partly on suppliers' credit needs less equity, which lifts the ratio.
• The payout ratio shows how much of the year's profit went out as dividends and how much the company kept.

The statements show the past. Item 1A, Risk Factors (from page 9), is where the company lists what could go wrong. Costco's includes a concentration point, on page 9, you won't find in the statements: U.S. and Canadian operations made up 86% of net sales, and California alone was 26% of U.S. net sales.

Patterns worth a second look in any company's statements:

• Net income up, operating cash flow down, year after year.
• Receivables growing much faster than revenue. The company may be booking sales it has not been paid for. Costco's own receivables grew 24% against 10% revenue growth in fiscal 2026, which shows why the notes matter: Note 1 (page 44) says they are mostly money due from vendors, pharmacy insurers and credit-card programs, not unpaid member purchases, and equal about 1.3% of revenue.
• A rising share count. New shares split the profit more ways, so EPS can fall even when net income rises.
• Large "one-time" charges that recur. Read the notes to see what is in them.
• Debt rising faster than assets or cash flow.

Each of these is a question to take to the MD&A and the notes. Our lesson on understanding risk covers the wider idea, and how stock prices work explains why a strong report does not always move a share price up.