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Walmart Inc. (WMT)
Analysis of Operating Leases
Difficulty: Advanced
An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee statement of financial position, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.
Operating Leases Accounting Policy
Walmart leases land, buildings, fixtures and equipment and transportation equipment. Walmart estimates the expected lease term by assuming the exercise of renewal options where an economic penalty exists that would preclude the abandonment of the lease at the end of the initial non-cancelable term and the exercise of such renewal is at the sole discretion of Walmart. The expected lease term is used in the determination of whether a store or club lease is a capital or operating lease and in the calculation of straight-line rent expense. Additionally, the useful life of leasehold improvements is limited by the expected lease term or the economic life of the asset, whichever is shorter. If significant expenditures are made for leasehold improvements late in the expected lease term and renewal is reasonably assured, the useful life of the leasehold improvement is limited to the end of the renewal period or economic life of the asset, whichever is shorter. Rent abatements and escalations are considered in the calculation of minimum lease payments in Walmart’s capital lease tests and in determining straight-line rent expense for operating leases.
Walmart is often involved in the construction of its leased stores. In certain cases, payments made for certain structural components included in the lessor’s construction of the leased assets result in Walmart being deemed the owner of the leased assets for accounting purposes. As a result, the payments, regardless of the significance, are automatic indicators of ownership and require Walmart to capitalize the lessor’s total project cost with a corresponding financing obligation. Upon completion of the lessor’s project, Walmart performs a sale-leaseback analysis to determine if these assets and the related financing obligation can be derecognized from Walmart’s Consolidated Balance Sheets. If Walmart is deemed to have "continuing involvement," the leased assets and the related financing obligation remain on Walmart’s Consolidated Balance Sheets and are generally amortized over the lease term. At the end of the lease term, including exercise of any renewal options, the net remaining financing obligation over the net carrying value of the fixed asset will be recognized as a non-cash gain.
Source: 10-K (filing date: 2019-03-28).
Present Value of Future Operating Lease Payments (before Adoption of FASB Topic 842)
Walmart Inc., future operating lease payments (before adoption of FASB Topic 842)
US$ in millions
| Jan 31, 2019 | Jan 31, 2018 | Jan 31, 2017 | Jan 31, 2016 | Jan 31, 2015 | Jan 31, 2014 | ||
|---|---|---|---|---|---|---|---|
| Total undiscounted future operating lease payments | |
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| Discount rate1 | |
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| Total present value of future operating lease payments | |
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Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-30), 10-K (filing date: 2017-03-31), 10-K (filing date: 2016-03-30), 10-K (filing date: 2015-04-01), 10-K (filing date: 2014-03-21).
1 Internal rate of return on capital leases
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2020 | |
2020 | |
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| 2021 | |
2021 | |
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| 2022 | |
2022 | |
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| 2023 | |
2023 | |
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| 2024 | |
2024 | |
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| 2025 and thereafter | |
2025 | |
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| 2026 | |
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| 2027 | |
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| 2028 | |
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| 2029 | |
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| 2030 | |
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| 2031 | |
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| Total: | |
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Based on: 10-K (filing date: 2019-03-28).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 | |
2021 | |
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| 2022 | |
2022 | |
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| 2023 | |
2023 | |
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| 2024 and thereafter | |
2024 | |
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| 2025 | |
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| 2026 | |
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| 2027 | |
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| 2028 | |
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| 2029 | |
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| 2030 | |
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| Total: | |
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Based on: 10-K (filing date: 2018-03-30).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2018 | |
2018 | |
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| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 | |
2021 | |
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| 2022 | |
2022 | |
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| 2023 and thereafter | |
2023 | |
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| 2024 | |
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| 2025 | |
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| 2026 | |
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| 2027 | |
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| 2028 | |
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| 2029 | |
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| 2030 | |
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| Total: | |
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Based on: 10-K (filing date: 2017-03-31).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2017 | |
2017 | |
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| 2018 | |
2018 | |
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| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 | |
2021 | |
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| 2022 and thereafter | |
2022 | |
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| 2023 | |
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| 2024 | |
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| 2025 | |
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| 2026 | |
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| 2027 | |
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| 2028 | |
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| 2029 | |
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| 2030 | |
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| Total: | |
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Based on: 10-K (filing date: 2016-03-30).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2016 | |
2016 | |
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| 2017 | |
2017 | |
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| 2018 | |
2018 | |
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| 2019 | |
2019 | |
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| 2020 | |
2020 | |
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| 2021 and thereafter | |
2021 | |
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| 2022 | |
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| 2023 | |
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| 2024 | |
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| 2025 | |
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| 2026 | |
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| 2027 | |
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| 2028 | |
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| 2029 | |
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| Total: | |
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Based on: 10-K (filing date: 2015-04-01).
| Year | Future operating lease payments (as reported) | Year | Future operating lease payments (estimated) | Present value at |
|---|---|---|---|---|
| 2015 | |
2015 | |
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| 2016 | |
2016 | |
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| 2017 | |
2017 | |
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| 2018 | |
2018 | |
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| 2019 | |
2019 | |
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| 2020 and thereafter | |
2020 | |
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| 2021 | |
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| 2022 | |
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| 2023 | |
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| 2024 | |
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| 2025 | |
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| 2026 | |
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| 2027 | |
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| 2028 | |
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| Total: | |
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Based on: 10-K (filing date: 2014-03-21).
Analyst Adjustments for Operating Leases
Walmart Inc., adjustments to financial data
US$ in millions
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-30), 10-K (filing date: 2017-03-31), 10-K (filing date: 2016-03-30), 10-K (filing date: 2015-04-01), 10-K (filing date: 2014-03-21).
1, 2 Equal to total present value of future operating lease payments.
Walmart Inc., Financial Data: Reported vs. Adjusted
Adjusted Ratios for Operating Leases (Summary)
Walmart Inc., adjusted ratios
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-30), 10-K (filing date: 2017-03-31), 10-K (filing date: 2016-03-30), 10-K (filing date: 2015-04-01), 10-K (filing date: 2014-03-21).
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Walmart Inc.’s adjusted total asset turnover improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
| Adjusted debt-to-equity | A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. | Walmart Inc.’s adjusted debt-to-equity improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Walmart Inc.’s adjusted ROA deteriorated from 2017 to 2018 and from 2018 to 2019. |
Walmart Inc., Ratios: Reported vs. Adjusted
Adjusted Total Asset Turnover
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-30), 10-K (filing date: 2017-03-31), 10-K (filing date: 2016-03-30), 10-K (filing date: 2015-04-01), 10-K (filing date: 2014-03-21).
2019 Calculations
1 Total asset turnover = Net sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Walmart Inc.’s adjusted total asset turnover improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
Adjusted Debt to Equity
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-30), 10-K (filing date: 2017-03-31), 10-K (filing date: 2016-03-30), 10-K (filing date: 2015-04-01), 10-K (filing date: 2014-03-21).
2019 Calculations
1 Debt to equity = Total debt ÷ Total Walmart shareholders’ equity
= ÷ =
2 Adjusted debt to equity = Adjusted total debt ÷ Total Walmart shareholders’ equity
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted debt-to-equity | A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. | Walmart Inc.’s adjusted debt-to-equity improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019. |
Adjusted Return on Assets (ROA)
Based on: 10-K (filing date: 2019-03-28), 10-K (filing date: 2018-03-30), 10-K (filing date: 2017-03-31), 10-K (filing date: 2016-03-30), 10-K (filing date: 2015-04-01), 10-K (filing date: 2014-03-21).
2019 Calculations
1 ROA = 100 × Consolidated net income attributable to Walmart ÷ Total assets
= 100 × ÷ =
2 Adjusted ROA = 100 × Consolidated net income attributable to Walmart ÷ Adjusted total assets
= 100 × ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Walmart Inc.’s adjusted ROA deteriorated from 2017 to 2018 and from 2018 to 2019. |