Walmart Inc. (NASDAQ:WMT)

An analysis of the economic value added reveals a significant transition from value destruction to substantial value creation over the period ending January 31, 2026. After a period of contraction and negative economic profit between 2022 and 2023, a strong recovery trend emerged, characterized by accelerating growth in operating performance that outpaced the increasing cost of capital.

Net Operating Profit After Taxes (NOPAT)

A V-shaped trajectory is observed in NOPAT, which declined from 18,130 million US$ in 2021 to a minimum of 13,880 million US$ in 2023. Following this trough, a robust recovery occurred, with NOPAT increasing consistently each year to reach 27,292 million US$ by 2026, indicating a significant expansion in operating profitability.

Cost of Capital

The cost of capital exhibited a steady and incremental upward trend throughout the period, rising from 10.42% in 2021 to 11.30% in 2026. This gradual increase indicates a rising hurdle rate for investments, which theoretically increases the difficulty of generating positive economic profit.

Invested Capital

Invested capital underwent a period of contraction between 2021 and 2023, falling from 164,411 million US$ to 149,558 million US$. From 2024 onward, a reversal occurred, with capital investment increasing steadily to 174,675 million US$ by 2026, suggesting a strategic phase of reinvestment to support growth.

Economic Profit

Economic profit transitioned from a positive 997 million US$ in 2021 to negative values in 2022 (-1,347 million US$) and 2023 (-2,095 million US$), signaling that NOPAT was insufficient to cover the charge for the cost of capital. A sharp turnaround was achieved by 2024, with economic profit returning to positive territory and growing exponentially to 7,553 million US$ by 2026. This recovery demonstrates that the growth in operating profit significantly offset both the expansion of the invested capital base and the rising cost of capital.

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 trajectory exhibits a distinct V-shaped recovery in economic value creation over the analyzed period. An initial phase of value destruction is evident between 2022 and 2023, followed by a sustained and accelerating trend of value generation leading into 2026.

Economic Spread Ratio

The ratio experienced a decline from 0.61% in 2021 to a nadir of -1.40% in 2023. This negative spread indicates a period where the return on invested capital fell below the required cost of capital. A significant reversal began in 2024, with the ratio ascending to 1.01% and continuing an upward trend to reach 4.32% by 2026, signaling an increasing efficiency in generating returns above the cost of capital.

Economic Profit

Economic profit mirrored the volatility of the spread ratio, transitioning from a positive 997 million in 2021 to losses of -1,347 million in 2022 and -2,095 million in 2023. The subsequent recovery was substantial, with profit returning to positive territory at 1,571 million in 2024 and expanding rapidly to 7,553 million by 2026. This trend represents a transition from capital erosion to significant absolute value addition.

Invested Capital

Invested capital underwent a period of contraction, decreasing from 164,411 million in 2021 to 149,558 million in 2023. From 2024 through 2026, a steady expansion is observed, with the capital base increasing to 174,675 million. The correlation between rising invested capital and an increasing economic spread ratio suggests that the expansion of the capital base is being driven by high-yield investments that contribute positively to the overall economic profit.

The financial performance regarding economic value creation demonstrates a distinctive U-shaped recovery pattern over the six-year period ending January 31, 2026. While net sales maintained a consistent upward trajectory, economic profit and its associated margin experienced significant volatility, transitioning from positive value creation to value destruction before achieving a period of accelerated growth.

Net Sales Growth

A steady and uninterrupted increase in net sales is observed, rising from 555,233 million USD in 2021 to 706,413 million USD by 2026. This indicates a consistent expansion of the top-line revenue base regardless of the fluctuations in economic profitability.

Economic Profit Trends

Economic profit began at 997 million USD in 2021 but declined into negative territory for two consecutive years, reaching a trough of -2,095 million USD in 2023. This suggests that during this interval, the returns generated were insufficient to cover the company's cost of capital. However, a sharp reversal occurred starting in 2024, with economic profit climbing rapidly to 7,553 million USD by 2026, marking a substantial increase in shareholder value creation.

Economic Profit Margin Evolution

The economic profit margin closely mirrors the trend of absolute economic profit. The margin contracted from 0.18% in 2021 to a low of -0.35% in 2023. Following this decline, a strong recovery phase is noted, with the margin expanding to 0.24% in 2024, 0.59% in 2025, and ultimately reaching 1.07% in 2026. This acceleration indicates that the company not only restored its ability to create economic value but also significantly improved the efficiency of its capital utilization relative to its sales volume.