Lesson 5 of 8
Capex and depreciation
Costco spent 5,498 million on property in fiscal 2025 and charged 2,426 million of depreciation. The asset schedule links the two, and leaves a residual.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- Property is a rolling schedule: opening balance plus what is spent less what is charged, and the residual is disposals, currency and impairment.
- Costco spent 5,498 million dollars and charged 2,426 million of depreciation in fiscal 2025, so spending was 2.27 times the charge.
- The roll does not close exactly, and the 195 million dollar residual is the honest output of the schedule rather than a plug to be forced.
Capital spending and depreciation are the same asset seen twice: once when it is bought and once as it is used up. A model that forecasts them independently will produce an asset base that drifts away from both.
Roll the property schedule forward
- Start from the opening net balance. Property and equipment, net, was 29,032 million dollars at 1 September 2024.
- Add the year's capital spending. Additions to property and equipment were 5,498 million dollars in fiscal 2025.
- Subtract the year's depreciation and amortisation. The segment disclosures give 1,895 million for the United States, 196 million for Canada and 335 million for Other International, totalling 2,426 million.
- That gives 32,104 million dollars.
- Compare with the reported closing balance of 31,909 million at 31 August 2025. The difference is 195 million.
- Name the difference rather than absorbing it: disposals, currency translation and any impairment. In a forecast, carry it as an explicit assumption or set it to zero and say so.
Costco capital spending against depreciation, three filed years
- Additions to property, FY2025$5,498m
- Additions to property, FY2024$4,710m
- Additions to property, FY2023$4,323m
- Depreciation and amortisation, FY2025$2,426m
What a ratio of 2.27 times tells a model
Depreciation is roughly what it costs to keep the existing asset base running. Spending 2.27 times that figure means most of the year's capital went into something new rather than into replacement.
In a model this has a direct consequence. If the revenue driver assumes warehouses are being added, the capital schedule has to carry the spending that adds them, and the depreciation charge on those assets arrives in later years rather than this one. Forecasting depreciation as a flat percentage of revenue breaks that link and understates the charge in exactly the years the new assets begin to age.
Linking the two properly
The workable approach in a model this size is two lines. Maintenance capital spending tied to the existing asset base, and growth capital spending tied to the revenue driver, here the number of warehouses being opened.
Depreciation then follows from the asset base rather than from revenue: apply an average life to the opening net balance and to the growth spending, with the new assets depreciating from the year after they are added. The average implied life here is the net balance over the charge, 31,909 over 2,426, or about 13.1 years, which is a blended figure across land, buildings and equipment.
Why the residual is left visible
The schedule does not close to zero and forcing it to would hide a real movement. Disposals happen, currency moves translate a foreign asset base, and an impairment can arrive in any year.
A model that plugs the 195 million dollars into depreciation has made depreciation a fitted number. A model that carries it as its own line has one more assumption and one fewer fiction.
Check yourself
What does the residual in a property roll represent?
- An error in the filing
- Disposals, currency translation and any impairment, which the roll does not otherwise capture
- Deferred tax on the asset base
Show the answer
Answer: B.
Opening plus additions less depreciation will not equal the closing balance because assets leave the base and foreign balances translate at different rates.Costco spent 2.27 times its depreciation charge in fiscal 2025. What follows for a model?
- That depreciation should be raised to match
- That most of the spending added capacity, so the depreciation on it arrives in later years and cannot be a flat share of revenue
- That the assets are being impaired
Show the answer
Answer: B.
Replacement spending roughly equals the charge. Spending well above it is growth, and its depreciation lands in the years after the asset is in service.What is the average implied life of the asset base here?
- About 3 years
- About 13.1 years, being 31,909 million of net property over a 2,426 million charge
- About 40 years
Show the answer
Answer: B.
It is a blended figure across land, buildings and equipment, useful as a model input and not as a statement about any single asset class.Sources
- Costco Wholesale Corporation, Form 10-K for the fiscal year ended 31 August 2025, filed 2025-10-08, accession 0000909832-25-000101: additions to property and equipment from the consolidated statements of cash flows, property and equipment net from the balance sheets, and depreciation and amortisation and additions to property by reportable segment.
- ASC 280, Segment Reporting, under which the per-segment depreciation and capital spending disclosures are made.
What this leaves out
- The 2,426 million dollar charge is this course's sum of the three reportable segments' disclosed depreciation and amortisation. Land is not depreciated, so the implied life of 13.1 years understates the life of the depreciable assets alone.
- Splitting capital spending into maintenance and growth is a modelling choice, not a disclosure. The filing reports one total and a split by segment.
- Nothing here is a view on Costco or on any security.