Earnings
In brief
DeepValues Research published “Earnings” on Costco Wholesale (COST) on Feb 19, 2026. Key differences Accrual vs. cash: Gross, operating and net profits are accrual‑accounting numbers; FCF and owner's earnings are cash‑based.
Source: https://research.deepvalues.ai/company/cost/earnings/ · Markdown · More on Costco Wholesale (COST)
Contents
1. Five ways a company measures what it really earns#
| Metric | Where it sits on the financials | How it's calculated | What it tells you | Common caveats |
|---|---|---|---|---|
| Gross profit | top of the income statement | Revenue - Cost of Goods Sold (COGS) | Pricing power and direct‑cost efficiency | Ignores R&D, marketing, overhead |
| Operating profit (EBIT) | middle of the income statement | Gross profit - operating expenses (SG&A, R&D, D&A, other operating items) | Core profitability of the business model, before financing & taxes | Still accrual‑based; excludes capital intensity |
| Net earnings (Net income) | "bottom line" of the income statement | Operating profit - interest ± other gains/losses - taxes | Ultimate accounting profit available to common shareholders | Includes many non‑cash items (goodwill impairments, fair‑value marks, etc.) (Investopedia) |
| Free cash flow (FCF) | cash‑flow statement | Operating cash flow - capital expenditures | Real cash left for buybacks, dividends, debt service & M&A | Very volatile for working‑capital‑heavy firms; growth cap‑ex treated the same as maintenance |
| Owner's earnings(Buffett) | economic concept, not GAAP | Net income + non‑cash charges - maintenancecap‑ex ± working‑capital normalisation | Sustainable cash that could be taken out without hurting competitive position | Company must estimate "maintenance" cap‑ex-rarely disclosed; analysts usually approximate it with long‑run average cap‑ex |
Key differences Accrual vs. cash: Gross, operating and net profits are accrual‑accounting numbers; FCF and owner's earnings are cash‑based. Scope: Each step downward includes more kinds of costs, so the figures generally shrink (gross > operating > net > owner's earnings). Signal: • Rising gross margins signal pricing power or lower COGS. • Expanding operating margins show cost discipline and scale. • Higher net margins reflect efficient financing & tax structure. • Strong, growing FCF / owner's earnings underpin dividends, buybacks and debt reduction.
2. How the current S&P 500 heavyweights stack up#
(latest fiscal year: FY‑2024 for most, FY‑2025 for Nvidia; figures in billions USD)
| Company (Ticker) | Gross Profit | Operating Profit | Net Income | Free Cash Flow | 3‑yr trajectory |
|---|---|---|---|---|---|
| Microsoft (MSFT) | 171.0(Macrotrends) | 109.4(Macrotrends) | 88.1(Macrotrends) | 74.1(Macrotrends) | New record; 5‑yr CAGR ~12 % across all four metrics |
| Nvidia (NVDA)* | 97.9(Macrotrends) | 81.5(Macrotrends) | 72.9(Macrotrends) | 60.9(Macrotrends) | Hyper‑growth: gross profit up 7×since FY‑2022; margins ~75 % |
| Apple (AAPL) | 180.7(Macrotrends) | 123.2(Macrotrends) | 96.2(Macrotrends) | 108.8(Macrotrends) | Stable; gross margin holds ~44 % while FCF keeps >$100 B |
| Amazon (AMZN) | 311.7(Macrotrends) | 68.6(Macrotrends) | 59.2(Macrotrends) | 38.2(Macrotrends) | Swung from negative FCF in 2022 to $38 B; operating margin doubled to 10 % |
| Alphabet (GOOGL) | 203.7(Macrotrends) | 112.4(Macrotrends) | 100.1(Macrotrends) | 72.8(Macrotrends) | Re‑accelerating after 2022 dip; record profits while AI cap‑ex rises |
| Meta Platforms (META) | 134.3(Macrotrends) | 69.4(Macrotrends) | 62.4(Macrotrends) | 54.1(Macrotrends) | Cost‑cuts drove net margin from 19 % (2022) to 38 % |
| Broadcom (AVGO) | 32.5(Macrotrends) | 13.5(Macrotrends) | 5.9(Macrotrends) | 19.4(Macrotrends) | VMware deal lifts gross profit 32 %, but integration hits net |
| Tesla (TSLA) | 17.45(Macrotrends) | 9.6 (EBIT)† | 7.13(Macrotrends) | 3.58(Macrotrends) | Gross margin has fallen from 29 % (2022) to <18 % as price cuts bite |
| Berkshire Hathaway (BRK.B) | n/a‡ | 118.1(operating) (Macrotrends) | 89.0(Macrotrends) | 11.6(Macrotrends) | Operating earnings up 27 % YoY; FCF lower after heavy cap‑ex & insurance float growth |
| JPMorgan Chase (JPM) | 177.6(Macrotrends) | n/a‡ | 56.9(Macrotrends) | -42.0(working‑capital swing) (Macrotrends) | Record profits on higher rates; FCF not meaningful for banks |
*Nvidia's fiscal year ends late‑January 2025. †Tesla's latest EBIT from investor filings (margin ~8 %). ‡For conglomerates & banks, "gross" and "operating" definitions differ; analysts focus on operating earnings (BRK) or net interest margin (JPM).
3. Company‑by‑company pulse‑check#
-
Microsoft - Cloud & AI keep gross margin near an all‑time‑high 69 %. FCF covers ~84 % of net income-a very "clean" conversion, signalling ample room for buybacks and a rising dividend.
-
Nvidia - Every metric is in hyper‑growth mode: gross profit, operating profit and FCF have risen >5× in two years, driven by AI datacentre GPUs. Margins above 75 % give it a cash‑machine profile unusual for chip makers.
-
Apple - Revenue is flat, yet FCF topped $100 B for the third straight year thanks to services mix and tight working‑capital cycles. Owner's earnings ≈ FCF because maintenance cap‑ex is a small slice of cash flow.
-
Amazon - AWS and advertising lifted gross profit to $312 B while head‑count and fulfilment cuts doubled operating margin. Positive FCF is back after the pandemic‑driven warehouse build‑out.
-
Alphabet - Operating income rebounded to $112 B; despite record AI cap‑ex, Alphabet still minted $73 B of FCF-evidence that the ad engine funds its "other bets."
-
Meta - Ruthless cost control pushed net margin to ~38 %, even as Reality Labs losses persist. FCF now runs ahead of cap‑ex by nearly $20 B.
-
Broadcom - VMware acquisition reset the P&L (one‑off charges), so net income dipped, but underlying FCF hit a record $19 B as AI networking chips take off.
-
Tesla - Price cuts to defend share sliced gross margins by ~11 ppt in two years; net income has halved and FCF fell below $4 B. High growth cap‑ex means owner's earnings are smaller still-an early‑cycle warning sign.
-
Berkshire Hathaway - Operating earnings, Buffett's preferred profit yard‑stick, set a record $118 B. Insurance float and higher rates helped; reported net swings with unrealised equity gains.
-
JPMorgan - Net income crossed $57 B, its best ever, as NIM widened. FCF is negative because bank cash‑flow statements treat deposit inflows/outflows as working capital-net income is the cleaner profitability gauge here.
4. Take‑aways for investors#
-
Gross‑to‑FCF "cascade": Companies that preserve a high share of gross profit all the way down to FCF (Microsoft, Nvidia, Apple) have the widest strategic optionality and lower need for outside capital.
-
Growth vs. durability: Nvidia's 55 % net margin is exhilarating-but also the most cyclical. Apple's and Microsoft's steadier margins signal durable competitive advantage.
-
Watch margin direction: Falling gross margins at Tesla and Broadcom foreshadow the profitability pressure you later see in net earnings and FCF.
-
Owner's earnings matter most when cap‑ex is heavy: For Tesla or Amazon (logistics), subtracting maintenancecap‑ex gives a truer picture than raw FCF; for the software‑heavy giants, FCF already approximates owner's earnings.
-
Banks/insurers need special lenses: Net interest margin (JPM) and underwriting plus investment income (Berkshire) are better "operating profit" proxies than the manufacturing‑style metrics used for tech and retail names.
Bottom line: The Magnificent Tech names are not only the biggest in the S&P 500-they are also generating record cash after a fresh wave of AI‑driven cap‑ex. Nvidia leads in growth; Apple and Microsoft lead in sheer cash harvest. Amazon and Meta have repaired margins impressively, while Tesla shows how quickly those margins can compress in a volume‑driven industry. For long‑term, value‑oriented analysis, track owner's earnings alongside headline profits-the metric Buffett uses to judge whether today's record numbers really translate into wealth for shareholders.