Walmart Corporate Bonds and Leverage Analysis

WMT Stock  USD 60.72  0.21  0.35%   
Walmart holds a debt-to-equity ratio of 0.813. At this time, Walmart's Debt Equity Ratio is comparatively stable compared to the past year. Debt Ratio is likely to gain to 0.29 in 2024, whereas Short Term Debt is likely to drop slightly above 5.4 B in 2024. Walmart's financial risk is the risk to Walmart stockholders that is caused by an increase in debt. In other words, with a high degree of financial leverage come high-interest payments, which usually reduce Earnings Per Share (EPS).

Asset vs Debt

Equity vs Debt

Walmart's liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. Walmart's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the Company is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps Walmart Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect Walmart's stakeholders.
For most companies, including Walmart, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for the executing running Walmart the most critical issue when dealing with liquidity needs is whether the current assets are properly aligned with its current liabilities. If not, management will need to obtain alternative financing to ensure that there are always enough cash equivalents on the balance sheet in reserve to pay for obligations.
Price Book
5.8143
Book Value
10.412
Operating Margin
0.0418
Profit Margin
0.0239
Return On Assets
0.0681
At this time, Walmart's Debt Equity Ratio is comparatively stable compared to the past year. Debt Ratio is likely to gain to 0.29 in 2024, whereas Short Term Debt is likely to drop slightly above 5.4 B in 2024.
  
Check out the analysis of Walmart Fundamentals Over Time.
For more information on how to buy Walmart Stock please use our How to Invest in Walmart guide.

Walmart Bond Ratings

Walmart bond ratings play a critical role in determining how much Walmart have to pay to access credit markets, i.e., the amount of interest on their issued debt. The threshold between investment-grade and speculative-grade ratings has important market implications for Walmart's borrowing costs.
Piotroski F Score
6  Healthy
Beneish M Score

Walmart Debt to Cash Allocation

As Walmart follows its natural business cycle, the capital allocation decisions will not magically go away. Walmart's decision-makers have to determine if most of the cash flows will be poured back into or reinvested in the business, reserved for other projects beyond operational needs, or paid back to stakeholders and investors. Many companies eventually find out that there is only so much market out there to be conquered, and adding the next product or service is only half as profitable per unit as their current endeavors. Eventually, the company will reach a point where cash flows are strong, and extra cash is available but not fully utilized. In this case, the company may start buying back its stock from the public or issue more dividends.
The company has 60.44 B in debt with debt to equity (D/E) ratio of 0.81, which is OK given its current industry classification. Walmart has a current ratio of 0.85, suggesting that it has not enough short term capital to pay financial commitments when the payables are due. Debt can assist Walmart until it has trouble settling it off, either with new capital or with free cash flow. So, Walmart's shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like Walmart sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for Walmart to invest in growth at high rates of return. When we think about Walmart's use of debt, we should always consider it together with cash and equity.

Walmart Total Assets Over Time

Walmart Assets Financed by Debt

Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the Walmart's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of Walmart, which in turn will lower the firm's financial flexibility. Like all other financial ratios, a a Walmart debt ratio should be compared their industry average or other competing firms.

Walmart Corporate Bonds Issued

Walmart issues bonds to finance its operations. Corporate bonds make up one of the most significant components of the U.S. bond market and are considered the world's largest securities market. Walmart uses the proceeds from bond sales for a wide variety of purposes, including financing ongoing mergers and acquisitions, buying new equipment, investing in research and development, buying back their own stock, paying dividends to shareholders, and even refinancing existing debt. Most Walmart bonds can be classified according to their maturity, which is the date when Walmart has to pay back the principal to investors. Maturities can be short-term, medium-term, or long-term (more than ten years). Longer-term bonds usually offer higher interest rates but may entail additional risks.

Walmart Short Long Term Debt Total

Short Long Term Debt Total

34.35 Billion

At this time, Walmart's Short and Long Term Debt Total is comparatively stable compared to the past year.

Understaning Walmart Use of Financial Leverage

Walmart financial leverage ratio helps in determining the effect of debt on the overall profitability of the company. It measures Walmart's total debt position, including all of outstanding debt obligations, and compares it with the equity. In simple terms, the high financial leverage means the cost of production, together with running the business day-to-day, is high, whereas, lower financial leverage implies lower fixed cost investment in the business and generally considered by investors to be a good sign. So if creditors own a majority of Walmart assets, the company is considered highly leveraged. Understanding the composition and structure of overall Walmart debt and outstanding corporate bonds gives a good idea of how risky the capital structure of a business and if it is worth investing in it. Financial leverage can amplify the potential profits to Walmart's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Walmart's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets).
Last ReportedProjected for 2024
Short and Long Term Debt Total60.4 B34.3 B
Net Debt50.6 B29.1 B
Short Term Debt5.7 B5.4 B
Long Term Debt36.1 B36.1 B
Long Term Debt Total35.5 B34.1 B
Short and Long Term Debt4.3 B3.9 B
Long Term Debt To Capitalization 0.30  0.29 
Total Debt To Capitalization 0.34  0.31 
Debt Equity Ratio 0.51  0.53 
Debt Ratio 0.17  0.29 
Cash Flow To Debt Ratio 0.84  0.88 
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When determining whether Walmart is a good investment, qualitative aspects like company management, corporate governance, and ethical practices play a significant role. A comparison with peer companies also provides context and helps to understand if Walmart Stock is undervalued or overvalued. This multi-faceted approach, blending both quantitative and qualitative analysis, forms a solid foundation for making an informed investment decision about Walmart Stock. Highlighted below are key reports to facilitate an investment decision about Walmart Stock:
Check out the analysis of Walmart Fundamentals Over Time.
For more information on how to buy Walmart Stock please use our How to Invest in Walmart guide.
You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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When running Walmart's price analysis, check to measure Walmart's market volatility, profitability, liquidity, solvency, efficiency, growth potential, financial leverage, and other vital indicators. We have many different tools that can be utilized to determine how healthy Walmart is operating at the current time. Most of Walmart's value examination focuses on studying past and present price action to predict the probability of Walmart's future price movements. You can analyze the entity against its peers and the financial market as a whole to determine factors that move Walmart's price. Additionally, you may evaluate how the addition of Walmart to your portfolios can decrease your overall portfolio volatility.
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Is Walmart's industry expected to grow? Or is there an opportunity to expand the business' product line in the future? Factors like these will boost the valuation of Walmart. If investors know Walmart will grow in the future, the company's valuation will be higher. The financial industry is built on trying to define current growth potential and future valuation accurately. All the valuation information about Walmart listed above have to be considered, but the key to understanding future value is determining which factors weigh more heavily than others.
Quarterly Earnings Growth
(0.12)
Dividend Share
0.76
Earnings Share
1.91
Revenue Per Share
80.243
Quarterly Revenue Growth
0.057
The market value of Walmart is measured differently than its book value, which is the value of Walmart that is recorded on the company's balance sheet. Investors also form their own opinion of Walmart's value that differs from its market value or its book value, called intrinsic value, which is Walmart's true underlying value. Investors use various methods to calculate intrinsic value and buy a stock when its market value falls below its intrinsic value. Because Walmart's market value can be influenced by many factors that don't directly affect Walmart's underlying business (such as a pandemic or basic market pessimism), market value can vary widely from intrinsic value.
Please note, there is a significant difference between Walmart's value and its price as these two are different measures arrived at by different means. Investors typically determine if Walmart is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, Walmart's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.

What is Financial Leverage?

Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.

Leverage and Capital Costs

The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.

Benefits of Financial Leverage

Leverage provides the following benefits for companies:
  • Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
  • It provides a variety of financing sources by which the firm can achieve its target earnings.
  • Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.