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Funding Flipkart impacts Walmart profits

The acquisition of Flipkart for USD 16 billion negatively affected Walmart’s net income in FY19 and will continue to do so in FY20 as well. The US firm, posted USD 514 billion in revenue for FY19 compared to USD 500 billion in the previous financial year – a growth of 2.8 percent. However, the growth was slower when compared with the previous financial year when the company grew 3 percent. The gross profit rate decreased 18 basis points in FY19. The decrease was due to the mixed effects of Walmart’s growing e-commerce businesses, the consolidation of Flipkart and its plan-pricing strategy, and increased transportation expenses.

Walmart also saw its total long-term debt increasing to USD 11.6 billion because of the issuance of long-term debt to fund a portion of the purchase price of Flipkart, and for general corporate purposes. It acquired 81 percent of the outstanding shares of Flipkart in August 2018 for a cash consideration of about USD 16 billion. The total assets of Flipkart were worth USD 24.1 billion, of which USD 13.6 billion were in ‘goodwill’, which is an intangible asset, associated with the purchase of one company by another and the anticipated growth.

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