Walmart Inc. (NYSE:WMT)

The period under review demonstrates fluctuating economic profit performance. Net operating profit after taxes (NOPAT) initially decreased before recovering, while the cost of capital consistently increased. Invested capital experienced a decline followed by a subsequent rise. These factors combined to create significant variations in economic profit over the six-year period.

NOPAT Trend

Net operating profit after taxes exhibited a slight decrease from US$18,200 million in 2020 to US$18,130 million in 2021. A more substantial decline followed, reaching US$15,307 million in 2022 and further decreasing to US$13,880 million in 2023. However, NOPAT rebounded strongly in 2024 to US$18,517 million and continued to increase to US$22,003 million in 2025, representing the highest value within the observed timeframe.

Cost of Capital Trend

The cost of capital showed a consistent upward trend throughout the period. Starting at 9.05% in 2020, it increased to 9.30% in 2021, 9.50% in 2022, and 9.52% in 2023. This upward trajectory continued with values of 9.71% in 2024 and 9.93% in 2025. This consistent increase suggests a growing cost of funding for the invested capital.

Invested Capital Trend

Invested capital decreased from US$167,329 million in 2020 to US$164,411 million in 2021. This decline continued to US$156,225 million in 2022 and reached its lowest point at US$149,558 million in 2023. However, invested capital began to recover, increasing to US$155,389 million in 2024 and further to US$161,279 million in 2025.

Economic Profit Trend

Economic profit mirrored the fluctuations in NOPAT and the increasing cost of capital. It began at US$3,064 million in 2020 and decreased to US$2,842 million in 2021. A significant reduction occurred in 2022, falling to US$470 million, followed by a negative economic profit of US$355 million in 2023. Economic profit then experienced a substantial recovery, reaching US$3,430 million in 2024 and culminating in US$5,992 million in 2025, the highest value observed during the period. The negative economic profit in 2023 indicates that the cost of capital exceeded the NOPAT generated during that year.

The substantial increase in economic profit in the final two years suggests improved efficiency in capital allocation or a more favorable operating environment. The earlier period of declining NOPAT and increasing cost of capital resulted in diminished economic profit, highlighting the importance of managing both profitability and capital costs.

Consolidated net income attributable to Walmart

The net income shows a fluctuating trend over the years. It started at 14,881 million USD in 2020, decreased to 13,510 million USD in 2021, and slightly increased to 13,673 million USD in 2022. There was a notable decline in 2023 to 11,680 million USD. However, in the subsequent years, a significant recovery and growth are observed, with net income rising to 15,511 million USD in 2024 and further increasing sharply to 19,436 million USD in 2025.

Net operating profit after taxes (NOPAT)

NOPAT demonstrates a general downward trend between 2020 and 2023, beginning at 18,200 million USD in 2020 and decreasing to 18,130 million USD in 2021. This decline continues more sharply through 2022 (15,307 million USD) and 2023 (13,880 million USD). From 2024 onwards, a strong recovery is evident, with NOPAT rising significantly to 18,517 million USD and then to 22,003 million USD in 2025.

Overall Analysis

Both net income and NOPAT experienced declines during the early years, particularly from 2020 to 2023, suggesting pressures on profitability possibly due to operational or market challenges. The drop in NOPAT is more pronounced, indicating operational efficiency or cost factors impacting returns after taxes. From 2024 to 2025, a notable reversal occurs, showing substantial growth in both profitability measures that surpass the initial levels reported in 2020. This suggests the company improved its operational performance and overall profitability during the latter period, potentially reflecting successful strategic initiatives, enhanced revenue generation, or cost management improvements.

The analysis of the provision for income taxes and cash operating taxes over the reported years reveals several key trends and insights into the company's tax-related financial performance.

Provision for Income Taxes

The provision for income taxes exhibits fluctuation across the examined periods. Starting at a lower level in the earliest year, it increased significantly in the second year, reaching its highest recorded value during this span. Following this peak, the provision decreased notably in the third year, indicating variability in taxable income or changes in tax regulations. Subsequently, it showed a moderate upward trend in the last two years, though not surpassing the earlier peak. Overall, this item demonstrates a pattern of volatility rather than steady growth or decline.

Cash Operating Taxes

Cash operating taxes show a generally increasing trend over the entire period. The values rise steadily year over year with minor deviations, suggesting growing tax cash outflows possibly driven by increased operating income or changes in cash tax settlement timing. The most notable increase occurs in the final year analyzed, which could indicate heightened tax payments or shifts in tax planning strategies resulting in greater actual cash disbursements for taxes.

Comparison and Interpretation

The divergence between provision for income taxes and cash operating taxes is apparent, where cash taxes consistently trend upwards more smoothly, whereas provisions are more volatile. This may reflect differences in accrual versus cash accounting methods for taxes, timing differences in tax payments, or adjustments due to tax law changes or deferred tax assets and liabilities. The steady increase in cash operating taxes, particularly the sharp rise in the latest period, warrants further investigation into the company's tax payment policies and operational profitability.

Total reported debt & leases

The total reported debt and leases exhibit a decreasing trend from January 31, 2020, to January 31, 2022, declining from 72,433 million US dollars to 57,323 million US dollars. This downward trend is somewhat reversed in the subsequent periods, with an increase to 61,321 million US dollars by January 31, 2024, before a slight decrease to 60,114 million US dollars in January 31, 2025. Overall, the debt and leases remain below the initial 2020 level, indicating a reduction over the five-year span despite minor fluctuations.

Total Walmart shareholders’ equity

Shareholders' equity shows a generally increasing trajectory over the analyzed periods. Starting at 74,669 million US dollars in January 2020, it rises steadily to peak at 83,253 million US dollars in January 2022. Although a dip occurs in January 2023 to 76,693 million US dollars, the equity rebounds strongly in subsequent years, reaching 91,013 million US dollars by January 2025. This pattern suggests growth in the company’s net value with temporary volatility in early 2023.

Invested capital

Invested capital demonstrates a consistent downward trend from 167,329 million US dollars in January 2020 to a low of 149,558 million US dollars in January 2023. However, after this point, there is an upward correction onward to 161,279 million US dollars by January 2025. This movement could reflect strategic capital management with periods of capital reduction followed by reinvestment or asset growth.

The economic spread ratio exhibited considerable fluctuation over the observed period. Initially, the ratio demonstrated a slight decline from 1.83% in 2020 to 1.73% in 2021. A significant contraction followed, with the ratio decreasing to 0.30% in 2022 and further into negative territory at -0.24% in 2023. However, a strong recovery is evident in the subsequent two years, with the ratio increasing to 2.21% in 2024 and reaching 3.72% in 2025.

Economic Spread Ratio Trend

The economic spread ratio’s movement closely mirrors the trend in economic profit. The decline in economic profit from 2020 to 2022 corresponds with the decreasing economic spread ratio. The negative economic profit in 2023 resulted in a negative economic spread ratio, indicating that returns on invested capital were less than the cost of capital. The substantial increase in economic profit in 2024 and 2025 drove the ratio back into positive territory and to its highest point in the observed period.

Invested capital generally decreased from 2020 to 2023, falling from US$167,329 million to US$149,558 million. A modest increase occurred in 2024, reaching US$155,389 million, followed by a further increase to US$161,279 million in 2025. This suggests a period of capital efficiency followed by reinvestment.

Relationship between Invested Capital and Economic Spread

While invested capital decreased during the period of declining economic spread (2020-2023), the primary driver of the ratio’s performance appears to be economic profit. The increase in the economic spread ratio in 2024 and 2025 occurred alongside an increase in invested capital, suggesting that the increased capital was deployed effectively to generate higher returns.

The substantial improvement in the economic spread ratio in the final two years of the period indicates a strengthening of the company’s ability to generate returns exceeding its cost of capital. This positive trend suggests improved operational efficiency and/or effective capital allocation strategies.

The economic profit margin exhibited considerable fluctuation over the observed period. Initial values demonstrated a healthy level of economic profitability, which subsequently declined before recovering and ultimately reaching a peak. A detailed examination of the trends reveals key insights into the company’s performance.

Economic Profit Margin Trend

The economic profit margin began at 0.59% in 2020, indicating that for every dollar of sales, the company generated approximately 0.59 cents of economic profit. This margin decreased to 0.51% in 2021, suggesting a slight reduction in economic profitability despite increased net sales. A significant decline was then observed in 2022, with the margin falling to 0.08%, indicating a substantial erosion of economic profit relative to sales.

The trend continued negatively in 2023, resulting in a negative economic profit margin of -0.06%. This signifies that the company’s cost of capital exceeded its economic profits, resulting in economic loss. However, a strong recovery occurred in 2024, with the margin rebounding to 0.53%. This positive trend accelerated in 2025, reaching a high of 0.89%, representing the strongest economic profitability within the analyzed timeframe.

The fluctuations in economic profit margin closely mirror the changes in economic profit. The negative margin in 2023 directly corresponds to the negative economic profit reported for that year. The substantial increase in the margin from 2023 to 2025 aligns with the significant growth in economic profit during the same period. This suggests a strong correlation between overall economic profit generation and the efficiency with which sales are translated into economic value.

Net Sales Correlation

Net sales consistently increased throughout the period, moving from US$519,926 million in 2020 to US$674,538 million in 2025. However, the increase in net sales did not always translate directly into improved economic profit margins. The decline in margin from 2020 to 2022, despite rising sales, suggests that factors beyond revenue growth, such as increased costs or a higher cost of capital, were impacting economic profitability.

The positive correlation between net sales and economic profit margin is most evident in the period from 2023 to 2025. As net sales continued to grow, the economic profit margin experienced a substantial increase, indicating improved efficiency and profitability during this timeframe.

In conclusion, the economic profit margin demonstrates a volatile pattern over the analyzed years. While net sales consistently increased, the ability to convert those sales into economic profit varied considerably. The substantial improvement in the margin during the final two years suggests successful strategies were implemented to enhance economic profitability.