MasterCard operates a payment transaction processing network, including authorization, clearing and settlement of transactions. The company also provides loyalty and reward programs, information services and consulting.
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|Book value of equity per share||$5.06||-8%||-2.8%||12.3%|
|BV including aggregate dividends||9.6%||7.9%||18.9%|
|1 year||5 years||10 years|
|Most recent||Growth rate (CAGR)|
|1 year||5 years||10 years|
|1 year||5 years||10 years|
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
MasterCard Incorporated is a financial company. Financial companies, by their nature, typically have high debt to equity leverage, which is not a meaningful analytical metric. We suggest you use the equity to assets ratio instead.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
On April 30, 2003, MasterCard International signed a Memorandum of Understanding (MOU) with plaintiffs in a class action suit brought by U.S. merchants against MasterCard International and Visa, U.S.A. Inc. in the U.S. District Court for the Eastern District of New York. In this lawsuit, plaintiffs challenged MasterCards Honor All Cards rule (and a similar Visa rule) and claimed that MasterCard and Visa had unlawfully tied acceptance of debit cards to acceptance of credit cards. Plaintiffs also alleged that MasterCard and Visa had conspired to monopolize what they characterized as the point-of-sale debit card market. MasterCard denies all claims in the lawsuit and nothing in the MOU constitutes an admission of wrongdoing or liability by MasterCard. In connection with signing the MOU, MasterCard recorded a pre-tax charge of $721,000K ($469,000K after-tax) for the period ended March 31, 2003, consisting of (i) the monetary amount of the proposed settlement (discounted at 8% over the payment term) and (ii) certain additional costs in connection with and in order to comply with other requirements of the proposed settlement. Amounts recorded are estimates and are subject to change in the future. The proposed settlement would require MasterCard to make payments of $125,000K in 2003 and $100,000K in 2004 through 2012.
MasterCard's capital stock is privately held by certain of the Company's customers which are principal members of MasterCard International. Each principal member of MasterCard International also has a class A membership interest in MasterCard International, representing that member's continued rights as a licensee to use MasterCard's brands, programs, products and services. MasterCard Incorporated owns the sole class B membership interest in MasterCard International, entitling MasterCard Incorporated to exercise all economic rights and substantially all voting rights in MasterCard International. MasterCard International is the Company's principal operating subsidiary. Pursuant to the Company's bylaws (the "bylaws"), on July 1, 2005 all of the Company's class B convertible common stock converted to class A redeemable common stock.
Prior to the IPO, the Company's capital stock was privately held by certain of its customers that are principal members of MasterCard International. All stockholders held shares of Class A redeemable common stock. In April 2006, MasterCard cancelled approximately 23 shares of Class A redeemable common stock primarily due to stockholders who had disclaimed ownership of these shares. Immediately prior to the closing of the IPO, MasterCard Incorporated filed an amended and restated certificate of incorporation. The certificate of incorporation authorized 4,501,000 shares, consisting of the following new classes of capital stock: (i) Class A: One vote per share, dividend rights; (ii) Class B: Non-voting, dividend rights; (ii) Class M: Generally non-voting, but can elect up to three, but not more than one-quarter, of the Company's directors and approve specified significant corporate actions (e.g., the sale of all of the assets of the Company) , no dividend rights; (iv) Preferred: No shares issued or outstanding, dividend and voting rights are to be determined by the Board of Directors of the Company upon issuance. The certificate of incorporation also provided for the immediate reclassification of all of the Company's 99,978 outstanding shares of existing Class A common stock, causing each of its existing stockholders to receive 1.35 shares of the Company's newly issued Class B common stock for each share of common stock that they held prior to the reclassification as well as a single share of Class M common stock. The Company paid stockholders an aggregate of $27 in lieu of issuing fractional shares that resulted from the reclassification. This resulted in the issuance of 134,969 shares of Class B common stock and 2 shares of Class M common stock. On May 31, 2006, the Company closed its IPO. The Company issued 66,135 newly authorized shares of Class A common stock in the IPO, including 4,614 [K] shares sold to the underwriters pursuant to an option to purchase additional shares, at a price of $39 per share. The Company received net proceeds from the IPO of approximately $2,449,910 [K].
On June 30, 2006, in accordance with the certificate of incorporation, the Company used all but $650,000 of the net proceeds from the IPO, or $1,799,910, to redeem 79,632 shares of Class B common stock from the Class B shareholders, the customers and principal members of MasterCard International. This number of shares equaled the aggregate number of shares of Class A common stock issued to investors in the IPO and donated to the Foundation. The redemption amount paid to Class B shareholders was allocated primarily between additional paid-in capital and retained earnings. Since 59% of the Class B shares were redeemed, 59% of the additional paid-in capital balance which existed prior to the IPO and was associated with Class B shares, or $575,001, was reduced against additional paid-in capital. The remaining $1,224,901 was charged to retained earnings since this amount was in excess of the original additional paid-in capital attributed to the Class B shares.
On June 24, 2008, MasterCard entered into a settlement agreement with American Express Company relating to the U.S. federal antitrust litigation between MasterCard and American Express. The American Express Settlement ended all existing litigation between MasterCard and American Express. Under the terms of the American Express Settlement, MasterCard is obligated to make 12 quarterly payments of up to $150,000K per quarter beginning in the third quarter of 2008. MasterCards maximum nominal payments will total $1,800,000K.
In the six months ended June 30, 2015, the Company acquired two businesses for $609 million in cash. For these businesses acquired, the Company recorded $466 million as goodwill representing the preliminary estimates of the aggregate excess of the purchase consideration over the fair value of net assets acquired.
On April 28, 2017, Mastercard acquired a 92.4% controlling interest in Vocalink for cash consideration of POUND 719 million ($929 million as of the acquisition date). In addition, the Vocalink sellers have the potential to earn additional contingent consideration up to POUND 169 million (approximately $220 million as of June 30, 2017) if certain revenue targets are met in 2018. Vocalink is a payment systems and ATM switching platform operator, located principally in the U.K.