Walmart Inc. (NASDAQ:WMT)

The analysis of economic profit reveals a period of operational volatility followed by a strong recovery and significant value creation. The transition from negative economic profit in the mid-period to substantial positive gains by 2026 indicates a successful alignment of operational returns with the cost of capital.

Net Operating Profit After Taxes (NOPAT)

A fluctuating trend is observed in NOPAT, which decreased from US$ 18,130 million in 2021 to a trough of US$ 13,880 million in 2023. Following this decline, a period of aggressive growth ensued, with NOPAT increasing to US$ 18,517 million in 2024 and continuing upward to reach US$ 27,292 million by January 31, 2026.

Cost of Capital and Invested Capital

The cost of capital maintained a steady upward trajectory throughout the period, rising incrementally from 10.23% in 2021 to 11.09% in 2026. Invested capital followed a U-shaped pattern, contracting from US$ 164,411 million in 2021 to a minimum of US$ 149,558 million in 2023, before expanding to US$ 174,675 million by the end of the analyzed period.

Economic Profit Performance

Economic profit experienced a significant reversal in trend. After starting at US$ 1,310 million in 2021, the figure turned negative for two consecutive years, reaching a deficit of US$ 1,800 million in 2023, suggesting that the return on invested capital was insufficient to cover the cost of capital. However, a sharp recovery began in 2024, with economic profit accelerating to US$ 4,333 million in 2025 and culminating in US$ 7,926 million by January 31, 2026, demonstrating an increased capacity for generating shareholder value above the minimum required return.

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.

An analysis of the economic value creation metrics reveals a cyclical pattern characterized by a mid-period decline followed by a robust recovery and expansion phase. The transition from negative to positive economic value added indicates a significant improvement in the efficiency of capital utilization over the observed period.

Economic Profit Trajectory

A contraction in economic profit is observed between 2021 and 2023, with values descending from US$ 1,310 million to a trough of -US$ 1,800 million. This downward trend reversed sharply in 2024, leading to a sustained increase that culminates in US$ 7,926 million by 2026.

Invested Capital Fluctuations

Invested capital showed a decreasing trend in the initial years, falling from US$ 164,411 million in 2021 to US$ 149,558 million in 2023. Following this trough, a steady growth trend is evident, with capital increasing to US$ 174,675 million by 2026.

Economic Spread Ratio Analysis

The economic spread ratio shifted from a positive 0.80% in 2021 to negative values in 2022 and 2023, reaching a low of -1.20%. This indicates a period where returns failed to cover the cost of capital. However, the ratio returned to positive territory in 2024 at 1.21% and expanded rapidly to 4.54% by 2026, signaling a substantial increase in the margin between the return on invested capital and the cost of capital.

The financial trajectory exhibits a significant recovery and subsequent expansion phase in value creation. After an initial period of positive economic profit, a phase of value destruction occurred between 2022 and 2023, followed by a robust upward trend in both absolute economic profit and the economic profit margin through 2026.

Economic Profit Trends

Economic profit transitioned from a positive US$ 1,310 million in 2021 to a deficit of US$ 1,040 million in 2022, reaching a low of negative US$ 1,800 million in 2023. A sharp reversal occurred in 2024, with profit returning to positive territory at US$ 1,886 million and accelerating rapidly to US$ 7,926 million by 2026. This represents a significant shift from destroying capital to generating substantial returns above the cost of capital.

Net Sales Growth

Net sales demonstrated consistent and uninterrupted growth throughout the analyzed period. Revenue increased steadily from US$ 555,233 million in 2021 to US$ 706,413 million by 2026. This linear growth indicates a stable expansion of the top line, which provided the scale necessary to support the eventual recovery in economic profit.

Economic Profit Margin Analysis

The economic profit margin mirrored the volatility of absolute economic profit, declining from 0.24% in 2021 to a trough of -0.30% in 2023. A strong recovery trend began in 2024, with the margin expanding to 0.29% and continuing to climb to 1.12% by 2026. This progression indicates a marked improvement in capital efficiency and an increasing ability to generate economic value relative to total sales volume.