Walmart Inc. (NYSE:WMT)

The period under review demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially decreased from 2020 to 2023 before exhibiting substantial growth in 2024 and 2025. Simultaneously, the cost of capital consistently increased throughout the observed timeframe, while invested capital generally declined from 2020 to 2023, followed by increases in 2024 and 2025.

Economic Profit Trend

Economic profit experienced a decline from US$1,417 million in 2020 to a negative value of US$1,950 million in 2023. This indicates that, for these years, the company’s returns were insufficient to cover the cost of capital employed. A significant turnaround occurred in 2024, with economic profit returning to a positive US$1,726 million, and further increasing substantially to US$4,160 million in 2025. This suggests improved capital allocation and/or operational efficiency in the later years.

NOPAT and Cost of Capital Relationship

While NOPAT decreased between 2020 and 2023, the cost of capital increased. This combination exerted downward pressure on economic profit. The subsequent increase in NOPAT, coupled with a continued rise in the cost of capital, resulted in a dramatic improvement in economic profit in 2024 and 2025, indicating that the growth in NOPAT outpaced the increase in the cost of capital.

Invested Capital Dynamics

Invested capital decreased from US$167,329 million in 2020 to US$149,558 million in 2023. This reduction in capital employed may have been a result of asset sales, improved working capital management, or other capital efficiency initiatives. The subsequent increase in invested capital in 2024 and 2025, alongside the growth in NOPAT, suggests reinvestment in the business and potentially expansionary activities.

Overall, the analysis reveals a period of challenge followed by significant improvement. The company’s ability to generate economic profit improved markedly in the final two years of the period, driven by substantial growth in NOPAT and effective capital management.

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 positive, it declined to negative values before recovering strongly in the later years. This movement correlates with changes in economic profit and invested capital.

Economic Spread Ratio Trend

The economic spread ratio began at 0.85% in 2020, indicating a positive spread between return on invested capital and the cost of capital. A decreasing trend was then observed, falling to 0.70% in 2021. This decline continued into negative territory, reaching -0.77% in 2022 and further deteriorating to -1.30% in 2023. A significant reversal occurred in 2024, with the ratio climbing to 1.11%, and this positive momentum accelerated in 2025, reaching 2.58%.

Relationship to Economic Profit

The economic spread ratio’s negative values in 2022 and 2023 align with periods of negative economic profit. Specifically, economic profit was negative in both 2022 (-1,196 US$ millions) and 2023 (-1,950 US$ millions). Conversely, the return to positive economic profit in 2024 (1,726 US$ millions) and the substantial increase in 2025 (4,160 US$ millions) coincided with the recovery and subsequent growth of the economic spread ratio.

Impact of Invested Capital

Invested capital generally decreased from 2020 to 2023, moving from 167,329 US$ millions to 149,558 US$ millions. This decrease in the capital base likely contributed to the negative economic spread during those years, as the same level of economic profit was spread over a smaller capital base. However, invested capital increased in both 2024 and 2025 (155,389 US$ millions and 161,279 US$ millions respectively), supporting the improved economic spread ratio in those periods.

The substantial increase in the economic spread ratio in 2025 suggests a significant improvement in the company’s ability to generate returns exceeding its cost of capital. The trend indicates a shift from value destruction to value creation over the analyzed timeframe.

The economic profit margin exhibited significant fluctuation over the observed period. Initially positive, it transitioned to negative values before recovering and ultimately demonstrating substantial growth. A detailed examination of the trends reveals key insights into the company’s profitability relative to its cost of capital.

Economic Profit Margin Trend

The economic profit margin began at 0.27% in January 2020, indicating a positive economic profit relative to net sales. This margin decreased to 0.21% in January 2021, suggesting a slight reduction in profitability adjusted for the cost of capital. A notable shift occurred in January 2022, with the margin turning negative at -0.21%, and further declining to -0.32% in January 2023. This indicates that the company’s profits were insufficient to cover its cost of capital during these years. A recovery commenced in January 2024, with the margin returning to 0.27%. The most significant improvement occurred in January 2025, where the economic profit margin rose substantially to 0.62%, representing a considerable increase in value creation.

The negative economic profit margins in 2022 and 2023 suggest periods where investments did not generate returns exceeding the company’s cost of capital. The substantial increase in the economic profit margin in 2025 indicates improved efficiency in capital allocation and/or increased profitability from sales. The correlation between net sales growth and the economic profit margin is not immediately apparent from this information alone, but the significant margin improvement in 2025 alongside continued sales growth suggests a positive relationship.

Net Sales Performance

Net sales demonstrated consistent growth throughout the period, increasing from US$519,926 million in January 2020 to US$674,538 million in January 2025. This upward trend in sales did not consistently translate into positive economic profit margins, particularly during 2022 and 2023, highlighting the importance of cost of capital considerations. The strong sales growth in 2024 and 2025 coincided with the recovery and subsequent surge in the economic profit margin, suggesting that increased sales volume, combined with effective cost management, contributed to the improved financial performance.

Overall, the economic profit margin demonstrates a volatile but ultimately positive trajectory. The company experienced challenges in generating economic profit during the 2022-2023 timeframe, but successfully reversed this trend, achieving a significantly improved margin by January 2025.