Walmart Inc. (NASDAQ:WMT)

The analysis of economic profit over the six-year period reveals a volatile trajectory, characterized by an initial phase of value erosion followed by a period of aggressive value creation. The company transitioned from generating a modest economic profit in 2021 to experiencing economic losses in 2022 and 2023, before achieving a sharp and sustained recovery from 2024 through 2026.

Net Operating Profit After Taxes (NOPAT)

A V-shaped recovery is observed in NOPAT. After starting at 18,130 million US$ in 2021, profitability declined for two consecutive years, reaching a trough of 13,880 million US$ in 2023. However, from 2024 onwards, NOPAT entered a growth phase, expanding rapidly to 27,292 million US$ by 2026, indicating a significant improvement in operational efficiency and earnings power.

Cost of Capital

The cost of capital exhibited a consistent upward trend throughout the entire period. Beginning at 10.28% in 2021, the rate increased steadily each year, closing at 11.14% in 2026. This gradual rise suggests an increasing hurdle rate for investments, likely reflecting changes in market risk premiums or the company's specific cost of funding.

Invested Capital

Invested capital followed a U-shaped pattern. There was a contraction in the capital base from 164,411 million US$ in 2021 to a low of 149,558 million US$ in 2023. Following this period of contraction, the company increased its investment base, reaching 174,675 million US$ by 2026. This indicates a shift from a phase of capital optimization or divestment back to a phase of expansion.

Economic Profit

Economic profit experienced significant fluctuations, moving from 1,235 million US$ in 2021 to negative values of -1,113 million US$ and -1,871 million US$ in 2022 and 2023, respectively. This period of value destruction coincided with declining NOPAT and a rising cost of capital. A strong reversal occurred in 2024, with economic profit returning to positive territory (1,810 million US$) and accelerating sharply to 7,837 million US$ by 2026. The magnitude of this recovery suggests that the growth in NOPAT substantially outpaced both the increasing cost of capital and the expansion of the invested capital base.

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 exhibits a volatile trajectory characterized by a period of value erosion followed by a robust recovery and accelerated expansion in economic value creation. Between 2021 and 2026, a transition from negative economic profit to substantial positive gains is observed, indicating a significant improvement in the ability to generate returns exceeding the cost of capital.

Economic Profit Trends

A notable decline occurred between 2021 and 2023, with economic profit falling from US$ 1,235 million to a trough of negative US$ 1,871 million. This trend reversed sharply starting in 2024, with profits rising to US$ 1,810 million and continuing an aggressive upward trajectory to reach US$ 7,837 million by January 31, 2026.

Invested Capital Dynamics

Invested capital underwent a period of contraction from US$ 164,411 million in 2021 to US$ 149,558 million in 2023. This was followed by a consistent expansion phase, with the capital base growing to US$ 174,675 million by 2026, suggesting a strategic alignment of increased investment with the period of rising profitability.

Economic Spread Ratio Analysis

The economic spread ratio closely mirrored the fluctuations in economic profit, descending into negative territory at -0.71% in 2022 and reaching a low of -1.25% in 2023, which signals that the cost of capital exceeded the returns generated. A recovery is evident from 2024 onward, with the ratio expanding from 1.17% to 4.49% by 2026, reflecting a widening and improving spread between the return on invested capital and its associated cost.

The financial performance indicates a period of initial volatility followed by a sustained recovery in value generation. While net sales maintained a consistent upward trajectory throughout the analyzed period, economic profit experienced a notable contraction before entering a phase of accelerated growth.

Net Sales Growth

A steady and uninterrupted increase in net sales is observed, rising from US$ 555,233 million in January 2021 to US$ 706,413 million by January 2026. This represents a consistent expansion of the top line over the six-year period.

Economic Profit Volatility and Recovery

Economic profit exhibited a V-shaped trend. After starting at US$ 1,235 million in 2021, the figure declined into negative territory, reaching a trough of -US$ 1,871 million in January 2023. A significant reversal occurred in January 2024, with economic profit returning to US$ 1,810 million and subsequently climbing to US$ 7,837 million by January 2026.

Economic Profit Margin Analysis

The economic profit margin closely mirrored the absolute economic profit trends. The margin compressed from 0.22% in 2021 to a low of -0.31% in 2023, indicating a period where returns did not cover the cost of capital. However, a strong recovery is evident from 2024 onwards, with the margin expanding to 0.28% in 2024, 0.63% in 2025, and peaking at 1.11% in 2026.

The convergence of rising net sales and an expanding economic profit margin suggests an improvement in operational efficiency and capital utilization. The transition from negative to positive economic profit signifies that the company has moved from value destruction to substantial value creation for its stakeholders.