Walmart Stores Inc. (NYSE: WMT) is a large discount variety store chain with multinational operations. It is the biggest retailer in America and generated sales of $510 billion in the fiscal year ended Jan. 31, 2019. The company had more than $9 billion in cash and equivalents on its balance sheet, but added to its total debt after borrowing $16 billion to finance the purchase of a 77% stake in Flipkart, India's biggest online retailer, in 2018. Still, capital structure analysis suggests that Walmart maintains a stable financial outlook.

Equity Capital

Equity refers to the financing available to a company that is generated through the issuance of stock and the accumulated net earnings to which shareholders have claim. In the shareholder equity section of the balance sheet, entries such as common stock, treasury stock, and retained earnings are common.

As of Jan. 2019, Walmart's total shareholder equity was $72.5 billion, down from $77.9 billion in 2018. This includes $288 million of common stock at par value, capital in excess of par value of $2.9 billion, retained earnings of $80.7 billion, along with accumulated other comprehensive loss of $11.5 billion.

Key Takeaways

  • Walmart is the largest retailer in America and one of the more actively traded stocks on the U.S. exchanges.
  • While Walmart has increased its debt levels in recent years, the company has substantial assets and generates more than a $500 billion in sales annually.
  • The company's enterprise value has expanded notably since a three-year decline ended in 2016.

Retained earnings decreased from $85 billion in 2018 to $80.7 billion in 2019 and $89 billion in 2018, though share repurchases have helped to push shareholder equity lower in recent years. The company announced a two-year $20 billion stock buyback program in Oct. 2017.

Debt Capital

Debt refers to financing from instruments such as bonds, notes, and bank loans that do not give financiers a claim to company profits, compensating them with interest instead. As of Jan. 2019, Walmart had long-term debt of $46.3 billion. Total debt—long and short term—was $54.1 billion. The company's long-term debt consists of unsecured notes denominated in U.S. dollars, euros, British pounds, and Japanese yen.

Walmart's total debt was $42.7 billion as of Jan. 2017 and $42.5 billion in 2016, so the three-year trend leading to 2019 was clearly toward a higher debt burden. This might reflect a changing outlook related to Walmart's new expense structure, as it revamps employee compensation and enhances its e-commerce platform.

Financial Leverage

Financial leverage is the extent to which debt capital is used to finance a business, and it can be measured with the total debt-to-capital ratio. This is calculated by dividing the book value of debt capital by the combined book values of debt capital and equity capital. Walmart's debt-to-capital ratio was .80 in 2019, up notably from .60 in 2018. The increase in financial leverage coincides with the increase in total debt.

Enterprise Value

Walmart has an enterprise value (EV) of $381.5 billion and a market cap of $328.8 billion. Like market capitalization, EV measures a company's market value, but it also includes the market value of net debt. This is especially useful when comparing companies with different amounts of financial leverage, which is common in cross-industry comparisons or acquisition valuations.

Walmart's EV fell significantly over the three years that ended in April 2016, but is up every year since. In April 2013, the company's EV was $299 billion, and it reached a high of $339 billion, before falling to a low at $226 billion in 2016.