Walmart Inc. (NASDAQ:WMT)

The financial performance, as measured by economic profit, exhibits a notable trajectory over the observed period. Initially, economic profit was positive but declined significantly before recovering and demonstrating substantial growth. Net operating profit after taxes (NOPAT) and invested capital both influence this trend, alongside fluctuations in the cost of capital.

Economic Profit Trend

Economic profit began at US$1,562 million in 2021. A substantial decrease was observed in 2022, resulting in an economic loss of US$792 million. This negative trend continued in 2023, with economic profit reaching a low of US$ -1,563 million. A turnaround began in 2024, with economic profit returning to a positive value of US$2,140 million. Subsequent years show accelerating growth, reaching US$4,605 million in 2025 and US$8,227 million in 2026.

NOPAT Analysis

Net operating profit after taxes decreased from US$18,130 million in 2021 to US$15,307 million in 2022, and further to US$13,880 million in 2023. A significant recovery occurred in 2024, with NOPAT increasing to US$18,517 million. This upward momentum continued, reaching US$22,003 million in 2025 and US$27,292 million in 2026. The recovery in economic profit from 2024 onwards aligns with the increasing NOPAT figures.

Cost of Capital

The cost of capital experienced a consistent, albeit gradual, increase throughout the period. Starting at 10.08% in 2021, it rose to 10.30% in 2022, 10.33% in 2023, 10.54% in 2024, 10.79% in 2025, and finally 10.91% in 2026. This increasing cost of capital likely contributed to the initial decline in economic profit, as a higher cost of capital reduces the amount of NOPAT available to exceed that cost and generate economic profit.

Invested Capital

Invested capital decreased from US$164,411 million in 2021 to US$156,225 million in 2022 and further to US$149,558 million in 2023. It then began to increase, reaching US$155,389 million in 2024, US$161,279 million in 2025, and US$174,675 million in 2026. The increase in invested capital in later years, coupled with rising NOPAT, appears to have driven the substantial growth in economic profit.

In summary, the period began with modest economic profit, experienced a downturn due to a combination of decreasing NOPAT and increasing cost of capital, and then demonstrated a strong recovery driven by substantial increases in both NOPAT and invested capital, despite the continued rise in the cost of capital. The latter half of the period indicates improving financial performance and value creation.

The financial performance, as indicated by the provided figures, reveals distinct trends in both consolidated net income attributable to Walmart and net operating profit after taxes (NOPAT) over the six-year period. NOPAT demonstrates more volatility than consolidated net income, with fluctuations occurring throughout the observed timeframe.

NOPAT Trend

NOPAT experienced a decrease from US$18,130 million in 2021 to US$13,880 million in 2023, representing a decline over two consecutive years. A subsequent recovery began in 2024, with NOPAT reaching US$18,517 million. This upward trajectory continued through 2025 and 2026, culminating in US$27,292 million. The rate of increase accelerated between 2024 and 2026, suggesting improving operational efficiency or revenue generation.

Relationship between NOPAT and Consolidated Net Income

While both metrics generally move in the same direction, the magnitude of change differs. Consolidated net income decreased from US$13,510 million in 2021 to US$11,680 million in 2023, a smaller decline than that observed in NOPAT. The subsequent recovery in net income, reaching US$21,893 million by 2026, was also less pronounced in percentage terms compared to the NOPAT recovery. This divergence suggests factors beyond core operational profitability are influencing net income, such as changes in non-operating items or tax rates.

The period between 2021 and 2023 indicates a period of challenge, as evidenced by the declines in both NOPAT and net income. However, the subsequent years demonstrate a strong recovery and growth phase, particularly for NOPAT, indicating a potential improvement in the underlying business performance. The increasing NOPAT values from 2024 onwards suggest a strengthening of the company’s ability to generate profit from its core operations.

Growth Rates

The most significant growth in NOPAT occurred between 2025 and 2026, with an increase of approximately US$5,289 million. This represents a substantial acceleration compared to the growth observed between 2024 and 2025. The period from 2021 to 2022 saw a decrease in NOPAT, while the period from 2022 to 2023 also showed a decrease, highlighting the initial challenges faced.

Overall, the figures suggest a business that navigated a period of decline before experiencing a robust recovery and growth phase, with NOPAT demonstrating a particularly strong positive trend in the later years of the observed period.

The provision for income taxes and cash operating taxes exhibited fluctuating patterns over the observed six-year period. While both metrics moved in similar directions, notable differences in magnitude and specific year-over-year changes were present.

Provision for Income Taxes

The provision for income taxes decreased significantly from US$6,858 million in 2021 to US$4,756 million in 2022, representing a substantial reduction. This was followed by an increase to US$5,724 million in 2023, and a more modest increase to US$5,578 million in 2024. Further increases were observed in 2025, reaching US$6,152 million, and again in 2026, culminating in US$7,199 million. Overall, the provision for income taxes demonstrates a general upward trend from 2022 to 2026, although with intermediate fluctuations.

Cash Operating Taxes

Cash operating taxes initially increased from US$5,505 million in 2021 to US$6,080 million in 2022. A slight decrease was then recorded in 2023, with the figure falling to US$5,868 million. Subsequent years saw increases, reaching US$6,392 million in 2024 and US$7,482 million in 2025. A notable decrease occurred in 2026, with cash operating taxes reported at US$5,652 million. The trend in cash operating taxes is characterized by volatility, with a peak in 2025 and a subsequent decline in 2026.

Relationship between Provision and Cash Taxes

In 2021, cash operating taxes were approximately 79.9% of the provision for income taxes. This percentage increased to 128.1% in 2022, indicating a higher proportion of cash taxes paid relative to the accounting provision. The ratio decreased to 102.1% in 2023, 114.7% in 2024, 121.5% in 2025, and then dropped to 78.4% in 2026. These fluctuations suggest changes in the timing of tax payments, utilization of tax credits, or differences between taxable income and accounting income.

The divergence between the provision for income taxes and cash operating taxes, particularly the significant decrease in cash operating taxes in 2026, warrants further investigation to understand the underlying drivers. The overall trend suggests increasing tax obligations from 2022 to 2026, despite the fluctuations observed in both metrics.

The reported invested capital exhibited fluctuations over the observed period. Initially, a decrease is noted, followed by a period of stabilization and subsequent growth. A closer examination of the components contributing to invested capital – total reported debt & leases and total shareholders’ equity – provides further insight into these trends.

Invested Capital Trend

Invested capital decreased from US$164,411 million in 2021 to US$149,558 million in 2023, representing a cumulative decline of approximately 9.0%. However, beginning in 2024, invested capital began to increase, reaching US$174,675 million by 2026. This represents a growth of approximately 17.5% from the 2023 low.

Debt & Leases

Total reported debt & leases decreased from US$63,246 million in 2021 to US$57,323 million in 2022, a reduction of 9.3%. It then experienced a modest increase to US$61,321 million in 2024 before rising more substantially to US$67,095 million in 2026. This suggests a recent shift towards increased reliance on debt financing.

Shareholders’ Equity

Total shareholders’ equity increased from US$80,925 million in 2021 to US$83,253 million in 2022, a growth of 3.1%. A decrease was observed in 2023, falling to US$76,693 million. However, shareholders’ equity then demonstrated consistent growth, reaching US$99,617 million in 2026. This indicates a strengthening of the company’s equity position in the later years of the period.

The interplay between debt and equity appears to influence the overall trend in invested capital. The initial decline in invested capital coincided with a decrease in both debt and equity, while the subsequent increase was driven by growth in both components, with a more pronounced increase in shareholders’ equity. The recent increase in debt levels, while contributing to the overall growth in invested capital, warrants further investigation to assess its potential impact on financial risk.

The economic spread ratio exhibited significant fluctuations over the observed period. Initially positive, it transitioned to negative values before recovering and demonstrating substantial growth. This movement correlates with changes in economic profit and invested capital.

Economic Spread Ratio Trend

The economic spread ratio began at 0.95% in 2021. It then decreased to -0.51% in 2022 and further declined to -1.04% in 2023. A positive shift occurred in 2024, with the ratio reaching 1.38%. This upward trajectory continued, accelerating to 2.86% in 2025 and culminating in a substantial 4.71% in 2026. This indicates an increasing ability to generate returns exceeding the cost of capital.

The economic spread ratio’s negative values in 2022 and 2023 suggest that, during those years, returns generated from invested capital were insufficient to cover the cost of that capital. The subsequent positive trend, particularly the strong performance in 2025 and 2026, indicates a successful improvement in profitability relative to capital employed.

Relationship to Economic Profit

The economic spread ratio’s movement closely mirrors that of economic profit. Negative economic profit values in 2022 and 2023 align with the negative economic spread ratio, while the positive and increasing economic profit from 2024 onwards corresponds with the ratio’s recovery and growth. This confirms a direct relationship between the two metrics.

The invested capital figures show a general upward trend, although with a slight decrease between 2021 and 2022. The increasing economic spread ratio alongside rising invested capital in later years suggests that the company is becoming more efficient at deploying capital and generating returns.

Overall Assessment

The observed trend in the economic spread ratio indicates a period of initial underperformance followed by a significant and sustained improvement in value creation. The substantial increase in the ratio from 2024 to 2026 suggests a strengthening competitive position and enhanced profitability relative to the capital invested.

The economic profit margin exhibited significant fluctuation over the observed period. Initially positive, it experienced a period of negative performance before returning to, and exceeding, initial levels. A clear upward trend in the economic profit margin is evident in the later years of the period.

Economic Profit Margin Trend

In 2021, the economic profit margin stood at 0.28%. This decreased substantially in 2022 to -0.14%, indicating economic loss. The decline continued into 2023, reaching a low of -0.26%. A positive shift occurred in 2024, with the margin rising to 0.33%. This positive momentum accelerated in 2025, reaching 0.68%, and continued strongly into 2026, culminating in a margin of 1.16%.

The economic profit margin’s movement closely mirrors the trend in economic profit. The negative margins in 2022 and 2023 correspond with negative economic profit values, while the positive margins in 2024, 2025, and 2026 align with positive economic profit. The magnitude of the margin increase from 2024 to 2026 suggests an improving ability to generate returns exceeding the cost of capital.

Relationship to Net Sales

Net sales demonstrated consistent growth throughout the period, increasing from 555,233 US$ millions in 2021 to 706,413 US$ millions in 2026. However, growth in net sales alone did not guarantee positive economic profit margins. The substantial increase in economic profit margin from 2024 onwards suggests that improvements in operational efficiency and/or capital allocation played a crucial role in translating sales growth into economic profit.

The substantial improvement in the economic profit margin from 2023 to 2026 indicates a strengthening of the company’s financial performance and its ability to create value for its investors. The trend warrants further investigation to identify the specific drivers of this improvement and to assess its sustainability.