In its 2020 10-K, Walmart (WMT) disclosed that it discounts operating leases by 6.1%. This rate is significantly higher than Walmart’s omnichannel retail peers, which report the following discount rates in their most recent filings:

-Target: 3.54%
-CVS: 4.5%
-Costco: 2.23%
-Kroger: 4.3%
-Home Depot: 3.1%

Using an inflated discount rate hide’s a firm’s true liabilities from investors.

Walmart has $20.9 billion in future operating lease obligations. The present value of those obligations, according to Walmart, is $14.3 billion. If we use the blended average discount rate for Walmart’s peer group— 3.53%— we calculate a lease liability of $16.4 billion. It means Walmart is understating the present value of its lease liabilities by approximately $2.1 billion, or 10% of its future operating lease obligations and 1.27% of total liabilities.

The weighted average interest rate on Walmart’s long term debt is 3.9%. Walmart’s 6.1% discount rate is up from 5.4% the prior year, or 12.96%.