Can Walmart Afford Its $40 Billion in Long-Term Debt?

Walmart (NYSE: WMT) is the biggest company by revenue on the planet, but the thousands of superstores it operates don't come without costs.

Walmart has over 2 million employees and spends billions of dollars on capital expenditures each year to maintain and refurbish its stores and distribution centers, and build new ones.

In order to fund those expenditures, the company has taken on a lot of debt. Currently, it has $39.6 billion worth of long-term debt on its balance sheet, $3.45 billion of which is due in the next year.

A Walmart sign lit up at night.

Image source: Walmart.

Walmart paid $2.3 billion in interest on that debt last year, but it generated $27 billion in operating income and $15.1 billion in free cash flow. So while the interest expense does take a significant bite out of its profits, Walmart should have no problem affording that debt in the future.

The giant retailer also has formidable competitive advantages due to its economies of scale and low-cost products, and it has an all but recession-proof business model. Its reputation for everyday low prices means that consumers visit its stores in part to save money.

Walmart has also withstood a significant challenge from Amazon, building an e-commerce business that now generates more than $100 billion in revenue annually.

Finally, Walmart has a strong balance sheet, showing that it should be able to withstand even a severe economic shock. It finished the fourth quarter with $9.9 billion in cash and equivalents as well as $76.9 billion in current assets, meaning assets that are expected to be converted into cash in the next year.

With a nearly recession-proof business model, strong profits, and a solid balance sheet, Walmart can easily afford its $40 billion in debt -- a financial position that should please and reassure its investors.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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