Is Walmart Inc (NYSE:WMT) A Financially Sound Company?

The size of Walmart Inc (NYSE:WMT), a US$279b large-cap, often attracts investors seeking a reliable investment in the stock market. Doing business globally, large caps tend to have diversified revenue streams and attractive capital returns, making them desirable investments for risk-averse portfolios. But, the key to their continued success lies in its financial health. I will provide an overview of Walmart’s financial liquidity and leverage to give you an idea of Walmart’s position to take advantage of potential acquisitions or comfortably endure future downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into WMT here.

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Does WMT produce enough cash relative to debt?

Over the past year, WMT has ramped up its debt from US$50b to US$61b – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$9.2b , ready to deploy into the business. Additionally, WMT has generated cash from operations of US$29b during the same period of time, resulting in an operating cash to total debt ratio of 47%, indicating that WMT’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In WMT’s case, it is able to generate 0.47x cash from its debt capital.

Can WMT meet its short-term obligations with the cash in hand?

Looking at WMT’s US$86b in current liabilities, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.81x.

NYSE:WMT Historical Debt November 25th 18
NYSE:WMT Historical Debt November 25th 18

Is WMT’s debt level acceptable?

With a debt-to-equity ratio of 77%, WMT can be considered as an above-average leveraged company. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. Accordingly, large companies often have lower cost of capital due to easily obtained financing, providing an advantage over smaller companies. The sustainability of WMT’s debt levels can be assessed by comparing the company’s interest payments to earnings. As a rule of thumb, a company should have earnings before interest and tax (EBIT) of at least three times the size of net interest. For WMT, the ratio of 10.96x suggests that interest is amply covered. Large-cap investments like WMT are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.

Next Steps:

WMT’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its lack of liquidity raises questions over current asset management practices for the large-cap. I admit this is a fairly basic analysis for WMT’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Walmart to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for WMT’s future growth? Take a look at our free research report of analyst consensus for WMT’s outlook.
  2. Valuation: What is WMT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WMT is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at