Walmart Inc. (NASDAQ:WMT)

The period under review demonstrates a fluctuating pattern in economic profit. Initial observations reveal a decline followed by a substantial recovery and continued growth. Net operating profit after taxes (NOPAT) and invested capital exhibit distinct trends that influence the overall economic profit performance.

Economic Profit Trend

Economic profit began at US$1,374 million in 2021, decreased significantly to a loss of US$976 million in 2022, and further declined to a loss of US$1,740 million in 2023. A positive turnaround occurred in 2024, with economic profit reaching US$1,951 million. This positive trend continued, accelerating to US$4,402 million in 2025 and further increasing to US$8,003 million in 2026. This indicates improving value creation over the observed timeframe.

NOPAT Analysis

Net operating profit after taxes experienced a decrease from US$18,130 million in 2021 to US$15,307 million in 2022, and a further decrease to US$13,880 million in 2023. A substantial recovery began in 2024, with NOPAT rising to US$18,517 million, and continued growth to US$22,003 million in 2025 and US$27,292 million in 2026. The increasing NOPAT from 2023 onwards is a primary driver of the improved economic profit.

Cost of Capital Analysis

The cost of capital consistently increased throughout the period, rising from 10.19% in 2021 to 11.04% in 2026. While the cost of capital increased, the growth in NOPAT outpaced this increase from 2024 onwards, contributing to the positive trend in economic profit.

Invested Capital Analysis

Invested capital decreased from US$164,411 million in 2021 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, further supported the growth in economic profit.

In summary, the initial period was characterized by declining profitability and negative economic profit. However, a significant shift occurred beginning in 2024, with substantial improvements in NOPAT and a subsequent increase in economic profit. The rising cost of capital was offset by stronger operational performance, resulting in a positive and accelerating trend in value creation through 2026.

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 0.84% in 2021. It then decreased to -0.62% in 2022 and further declined to -1.16% in 2023. A positive shift occurred in 2024, with the ratio rising to 1.26%. This upward trajectory continued, reaching 2.73% in 2025 and culminating in a substantial 4.58% 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 significant increase in 2025 and 2026, indicates improved profitability and efficient capital allocation.

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 spread ratios, while the positive economic profit reported in 2024, 2025, and 2026 corresponds with the increasing spread ratios. This confirms a direct relationship between the two metrics.

Relationship to Invested Capital

Invested capital generally increased over the period, although a decrease was observed between 2021 and 2023. The increasing economic spread ratio in the later years, despite the continued growth in invested capital, suggests that the company became more effective at deploying capital to generate returns. The initial decline in invested capital between 2021 and 2023 did not prevent the economic spread ratio from becoming negative, indicating that profitability was the primary driver of the initial decline in the ratio.

The substantial increase in the economic spread ratio from 2024 to 2026 suggests a significant improvement in the company’s ability to create value for its investors. Continued monitoring of these trends will be crucial to assess the sustainability of this performance.

The economic profit margin exhibited significant fluctuation over the observed period. Initially positive, it experienced a period of negative performance before returning to positive values and demonstrating a clear upward trend.

Economic Profit Margin Trend

In 2021, the economic profit margin stood at 0.25%. This decreased substantially in 2022 to -0.17%, and continued to decline in 2023, reaching -0.29%. A reversal occurred in 2024, with the margin becoming positive again at 0.30%. Subsequent years show consistent growth, increasing to 0.65% in 2025 and further to 1.13% in 2026. This indicates a strengthening of the company’s ability to generate returns exceeding its cost of capital.

The economic profit margin’s movement closely mirrors the trend in economic profit. The negative margins in 2022 and 2023 correspond with periods of negative economic profit, suggesting that the company’s returns were insufficient to cover its capital costs during those years. The positive correlation between economic profit and economic profit margin is expected.

Relationship to Net Sales

Net sales demonstrated a consistent upward trend throughout the period, increasing from 555,233 US$ millions in 2021 to 706,413 US$ millions in 2026. However, the increase in net sales alone did not guarantee positive economic profit margins. The improvement in the economic profit margin from 2024 onwards suggests that factors beyond revenue growth, such as improved operational efficiency or a lower cost of capital, contributed to the enhanced profitability.

The substantial increase in economic profit margin from 0.30% in 2024 to 1.13% in 2026 represents a significant improvement in value creation. This suggests that the company is becoming increasingly effective at deploying capital to generate returns that exceed investor expectations.