Walmart Inc. (NASDAQ:WMT)

The financial performance from January 31, 2021, to January 31, 2026, reflects a cycle of economic value contraction followed by a period of significant expansion. A phase of economic value destruction occurred during the 2022 and 2023 fiscal years, characterized by negative economic profit. This trend reversed sharply starting in 2024, leading to a substantial increase in value creation that peaked at US$ 7,646 million by January 31, 2026.

Net Operating Profit After Taxes (NOPAT)

NOPAT followed a V-shaped trajectory over the observed period. After an initial decline from US$ 18,130 million in 2021 to a low of US$ 13,880 million in 2023, the figure grew aggressively, reaching US$ 27,292 million by 2026. This recovery indicates a strong restoration and subsequent expansion of operational profitability.

Cost of Capital

A consistent upward trend is observed in the cost of capital, which rose incrementally from 10.37% in 2021 to 11.25% in 2026. This gradual increase suggests a rising hurdle rate, requiring the entity to generate higher operating returns to maintain positive economic value added.

Invested Capital

Invested capital experienced a period of contraction between 2021 and 2023, falling from US$ 164,411 million to US$ 149,558 million. Following this period of optimization, the capital base expanded steadily, reaching US$ 174,675 million by 2026, signaling renewed investment in the company's asset base.

Economic Profit Analysis

The convergence of declining NOPAT and a rising cost of capital resulted in economic losses of US$ 1,271 million in 2022 and US$ 2,021 million in 2023. However, the subsequent surge in NOPAT significantly outpaced the growth in both invested capital and the cost of capital. This led to a rapid turnaround, with economic profit accelerating from US$ 1,650 million in 2024 to US$ 7,646 million in 2026, demonstrating an enhanced ability to generate returns above the cost of funding.

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 financial performance regarding economic value creation exhibits a distinct U-shaped trajectory over the analyzed six-year period. After an initial period of value destruction, there is a significant and accelerating trend toward value creation, characterized by a strong recovery in both absolute economic profit and the efficiency of capital utilization.

Economic Profit Trends

A volatile period occurred between 2021 and 2023, with economic profit shifting from a positive 1,075 million US$ to a deficit of 2,021 million US$ at the lowest point in January 2023. This indicates a period where returns did not cover the cost of capital. However, a sharp reversal is observed starting in 2024, with profits ascending to 7,646 million US$ by January 2026, marking a substantial increase in the company's ability to generate wealth above its required return.

Invested Capital Dynamics

Invested capital experienced a gradual decline from 164,411 million US$ in 2021 to a minimum of 149,558 million US$ in 2023. Following this trough, a consistent expansion of the capital base is evident, reaching 174,675 million US$ by 2026. The simultaneous increase in both invested capital and economic profit after 2023 suggests that new capital deployments have been highly accretive.

Economic Spread Ratio Analysis

The economic spread ratio mirrors the movement of economic profit, reflecting the margin by which the return on invested capital exceeds the cost of capital. The ratio declined from 0.65% in 2021 to a low of -1.35% in 2023, signifying a period of negative spread. From 2024 onward, the ratio demonstrates a strong upward momentum, climbing to 1.06%, 2.53%, and finally 4.38% in 2026. This acceleration indicates a significant improvement in operational efficiency and capital productivity.

The convergence of rising invested capital and a rapidly expanding economic spread ratio suggests an optimized financial structure. The transition from a negative spread to a 4.38% positive spread by 2026 indicates that the organization has successfully scaled its operations while increasing the profitability of each dollar of capital invested.

A comprehensive analysis of the financial performance between 2021 and 2026 reveals a period of initial instability in value creation followed by a strong recovery. While top-line revenue demonstrated consistent growth throughout the period, economic profit experienced a significant contraction before entering a phase of rapid expansion.

Net Sales Performance

A steady upward trend is observed in net sales, which increased from US$ 555,233 million in 2021 to US$ 706,413 million by 2026. This consistent growth indicates a sustained expansion of the revenue base over the six-year period.

Economic Profit Trajectory

Economic profit exhibited significant volatility, shifting from a positive US$ 1,075 million in 2021 to negative values in 2022 and 2023, reaching a trough of negative US$ 2,021 million. A sharp recovery began in 2024, with values accelerating to US$ 4,079 million in 2025 and peaking at US$ 7,646 million in 2026. This transition suggests a period of capital underperformance or increased cost of capital followed by a successful optimization of economic value added.

Economic Profit Margin Analysis

The economic profit margin mirrored the volatility of the absolute economic profit. The margin declined from 0.19% in 2021 to a low of -0.33% in 2023. Subsequently, a strong recovery was recorded, with the margin expanding to 0.26% in 2024, 0.60% in 2025, and reaching 1.08% by 2026. The fact that the margin expanded more rapidly than net sales in the latter years indicates that the increase in economic profit was driven by efficiencies and value creation that exceeded the growth of the revenue base.