20 / Financial analysis / Variance model
Walmart Financial Analysis
A team analysis of Walmart's fiscal 2023–2025 10-K results, with a variance model that compares what Walmart reported against Morningstar's forecasts and management's guidance, and an evaluation of how Walmart budgets and forecasts.
01 / The question
How healthy is Walmart, and how well can anyone forecast it?
The report asks two questions of one company. The first is a financial statement question: over fiscal 2023 to 2025, did Walmart's growth, profitability, liquidity, leverage and efficiency get better, and why? The second is a planning question: how close did management guidance and analyst forecasts come to what Walmart actually reported, and what does that say about how Walmart budgets? The work is for a cost and managerial analysis course and draws only on public sources: audited 10-K filings, earnings-call guidance, Morningstar forecasts and industry data.
02 / Financial statement analysis
Revenue rose 11%, and net income rose 66%.
Fiscal years end on January 31. The three-year view, in USD millions, is below.
| Metric | FY2023 | FY2024 | FY2025 |
|---|---|---|---|
| Revenue | 611,289 | 648,125 | 680,985 |
| Operating income | 20,428 | 27,012 | 29,348 |
| Net income | 11,680 | 15,511 | 19,436 |
| Total assets | 243,197 | 252,399 | 260,323 |
| Shareholders' equity | 83,757 | 90,348 | 97,421 |
| Operating cash flow | 28,811 | 35,726 | 36,443 |
Revenue grew 6.0% and then 5.1%, but net income grew 32.8% and then 25.3%, so profit rose several times faster than sales. The report reads that as operating leverage: operating costs grew more slowly than revenue, helped by automation in distribution centers, technology-enabled labor efficiency and better inventory control. FY2025 operating margin was about 4.3% and net margin 2.9%, and the report puts Walmart's operating margin above Costco's roughly 3.5% and Target's roughly 3.0%.
Cash flow tells a consistent story. Operating cash flow rose from $28.8B to $36.4B, faster than net income, which the report credits to better inventory turnover and longer supplier payment terms. Investing outflows stayed near $21B a year, the reinvestment in automation, data centers and fulfillment, while cash at year-end held near $9.9B.
03 / Ratio analysis
Returns improved without leaning on debt.
The report tracks four years of ratios in four families, liquidity, leverage, profitability and efficiency. The values it quotes in the text are below.
| Ratio | Earlier year | FY2025 | How the report reads it |
|---|---|---|---|
| Current ratio | 0.927 (2022) | 0.8227 | Fewer current assets per dollar of current liability: inventory sells faster and suppliers are paid later, which improves working capital. |
| Debt to equity | 0.4144 | 0.4010 | Consistently below 0.5, a conservative approach to debt. |
| Interest coverage | n/a | 13x | Operating income covers annual interest expense about 13 times. |
| Net margin | 1.91% (2023) | 2.85% | The gain came from below the gross profit line, such as lower interest expense and cost control, not from pricing power. |
| Return on assets | 4.79% | 7.57% | More income from an asset-heavy base of stores and distribution centers. |
| Return on equity | 14.6% | 22.2% | Driven by operating efficiency rather than leverage, given the low debt ratio. |
| Inventory turnover | 8.2011 (2023) | 9.1937 | Better liquidity does not come from excess inventory. |
| Asset turnover | 2.5050 | 2.6538 | More revenue for each dollar of assets. |
The ratios are meant to be read together. A falling current ratio can look like a warning sign, but alongside faster inventory turns and a debt ratio under 0.5, the report treats it as a sign of efficiency. Likewise, the report argues the rise in return on equity comes from operations, not from more debt.
04 / The variance model
Walmart beat expectations, then stopped surprising.
The workbook compares three views of each year: management's earnings-call guidance, Morningstar's forecast, and the actual 10-K result. It splits the pre-2024 EPS figures by three to adjust for the February 2024 three-for-one stock split, so all years sit on the same basis. The variances below are calculated from the model's inputs.
| Year and metric | Forecast | Actual | Variance |
|---|---|---|---|
| FY2023 revenue | 607,031 | 611,289 | +0.70% |
| FY2023 operating income | 24,339 | 24,602 | +1.08% |
| FY2023 net income | 9,987 | 11,680 | +17.0% |
| FY2023 diluted EPS | 1.22 | 1.42 | +16.4% |
| FY2024 revenue | 643,388 | 648,125 | +0.74% |
| FY2024 operating income | 26,771 | 27,012 | +0.90% |
| FY2024 net income | 14,498 | 15,511 | +7.0% |
| FY2024 diluted EPS | 1.79 | 1.91 | +6.5% |
| FY2025 revenue | 682,711 | 680,985 | −0.25% |
| FY2025 operating income | 29,906 | 29,348 | −1.87% |
| FY2025 net income | 19,632 | 19,436 | −1.0% |
| FY2025 diluted EPS | 2.43 | 2.41 | −0.8% |
Three things stand out. First, the pattern is monotonic. Net income beat the forecast by about 17%, then 7%, then missed by 1%, and EPS moved the same way. Second, in FY2023 and FY2024 management's guidance was cautious, citing inflation and weak discretionary demand in FY2023 and about $0.42 of below-the-line EPS pressure in FY2024, and analysts followed that caution and were too low. Third, in FY2025 management said to expect low single-digit revenue growth with operating income growing a little faster, analysts priced that in, and Walmart landed almost exactly on the forecast. The report reads the shrinking gap as better communication and a more predictable operating model as marketplace, advertising and automation businesses matured.
| Item | Management guidance | Morningstar |
|---|---|---|
| Net sales growth | 3% to 4% (constant currency) | Revenue $705.7B |
| Operating income | Growth of 4% to 6% in constant currency, per the workbook | $31.8B |
| EPS | Adjusted EPS $2.50 to $2.60 | Diluted EPS $2.72 |
| Other | Capex at 3% to 3.5% of sales; Vizio acquisition a headwind of about 150 basis points; a $0.05 per share currency headwind | Net income $21.8B |
The forecast sits above the top of management's EPS range, by 4.6% against $2.60. It is not a like-for-like comparison, since Morningstar's figure is diluted EPS and management's is adjusted EPS, but it is consistent with analysts expecting more than management was willing to guide. The report notes the FY2026 results were due on 19 February 2026.
05 / Budgeting and forecasting
A hybrid process, with room to become more dynamic.
The second half of the report evaluates how Walmart plans. It describes a hybrid approach: top-down strategy and financial goals set by executives and finance, then a bottom-up pass in which operations tests whether the targets are achievable and renegotiates when events make them unrealistic. The report gives the example of a 15% return on invested capital target that a shock could make unreachable in a given division.
| Mechanism | What it does |
|---|---|
| Sandbox and “Digital Twin” | Runs multiple scenarios, and models a predictive cost for supplier goods from commodity indexing, which gives Walmart an advantage in budget negotiations. |
| “North Star” targets | Cascades a contribution-margin target to each department so the top-down strategy shapes the budget. |
| 4-5-4 calendar | Ends the year on 31 January and uses a four-, five-, four-week month pattern so sales compare like for like across years. |
| Open-to-Buy | Sets how much inventory buyers may purchase for a season, and adjusts if the first month slows, to avoid overstocking later. |
| Joint Business Planning | Builds sales forecasts with major suppliers through Retail Link, so a supplier's unit forecast feeds Walmart's revenue forecast. Forecasts update monthly and look beyond a year. |
The report then lists six challenges: input-cost volatility (cost of goods sold rose from about $463.7B to $511.8B), supply-chain disruption, labor and compensation variability, the complexity of over 10,700 stores and more than 2 million employees across different business rhythms, shifting consumer behavior and pricing pressure, and capital-expenditure risk to free cash flow. It pairs them with five opportunities, including richer data for forecasting, using the U.S. business as a template, recurring revenue streams and strong cash generation.
| Proposal | Why |
|---|---|
| Rolling forecasts, updated quarterly or monthly | Respond faster to inflation, cost shocks, supply delays and demand shifts than a static annual budget. |
| Bottom-up forecasting by store, region, channel and SKU | Cuts data-fragmentation risk and finds problem areas early, on a cost base above $500B. |
| Advanced analytics, AI and predictive models | Better demand and inventory forecasts, especially for e-commerce and memberships. |
| Integrated cash-flow and capex forecasting | Link working capital, capex, debt service and liquidity so investment, dividends and buybacks are funded. |
| Operational KPIs as leading indicators | Inventory turnover, same-store sales, e-commerce penetration, membership renewals, fulfillment cost and lead times flag deviations before they reach the financials. |
| Aligned cross-segment forecasting | Standard assumptions, shared data definitions and synchronized cycles across all business units. |
| Forecast recurring revenue separately | Memberships and digital services are more predictable than commodity retail. |
06 / The conclusion
Discipline and reinvestment, with forecasting as the gap.
The report concludes that Walmart used operational discipline and steady reinvestment to absorb supply-chain strain, inflation and changing shopping habits, while strengthening its balance sheet and returning capital to shareholders. The area it flags for improvement is planning: in a fast-changing environment, conventional annual budgeting may not be enough, and scenario planning, predictive analytics and real-time data would make the forecast more resilient.
07 / Reading the files with care
Where the report and the workbook disagree.
The variance model and the report were built separately, so a few figures differ between them. None changes the story, but they are worth knowing.
| Item | What the files show |
|---|---|
| FY2025 operating income | The report's overview table prints 29,384, while the workbook and the report's own text use 29,348. This page uses 29,348. The 4.3% margin is the same either way. |
| FY2023 operating income | The overview table uses $20.4B and the variance comparison uses $24.6B. The files do not explain the gap, which looks like a different basis such as adjusted operating income. |
| FY2026 operating income guidance | The report quotes growth of 3.5% to 5.5%, and the workbook records 4% to 6% in constant currency. |
| FY2026 EPS comparison | Analysts' diluted EPS is set against management's adjusted EPS, so the gap is indicative. |
| Executive Summary sheet | Five of its six FY2026 lines point at cells that are empty, so they read zero once the workbook recalculates. The other sheets are unaffected, and the workbook stores formulas without saved values, so a preview that does not recalculate shows blanks. |
08 / The team video
The presentation, recorded.
The team recorded a presentation of the analysis, about 17 minutes long. It plays here and downloads as an MP4. The file is large, so it loads only when you press play.