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How Is MasterCard Funding Acquisitions and Growth?

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Strong cash flows

MasterCard (MA) has a debt of $3.3 billion with a total balance sheet of $16.2 billion as of December 31, 2015. This compares to $15.3 billion in 4Q14. In 2015, the company generated free cash flows from operations of $4.0 billion compared to $3.4 billion in the previous year. The company had total cash and equivalents and liquid investments of about $5.7 billion as of December 31, 2015. The company’s leverage increased with long-term debt rising from $1.5 billion to $3.3 billion in the fourth quarter of 2015.

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MasterCard deploys cash flows for dividends, share repurchases, investments in technology, and expansion. The company repurchased 8 million shares of Class A common stock at a cost of $793 million, forming approximately 3% of the company’s total capitalization. As of December 2015, MasterCard had $500 million remaining under the current authorization.

MasterCard’s debt-to-equity ratio stood at 22% in fiscal 2015. Here’s how some of MasterCard’s peers in the payment processing industry fared with their leverages in fiscal 2015:

  • Visa (V) – debt-free entity
  • American Express (AXP) – 513%
  • Discover Financial Services (DFS) – 203%

Together, these companies account for 1.8% of the iShares S&P 500 Index (IVV).

Organic expansion

MasterCard expanded its earnings per share by 22% in the fourth quarter. The company expects to generate higher net on stable currency in the next year. Revenue momentum is expected to continue in the next year, led by growth from Europe and Asia.

MasterCard is also pushing for cost control in order to improve margins. The company’s main competitive advantages are accessibility, convenience, and security. Its brand name, product range, and track record of secure transaction processing gives it an edge over new players.

In the next part of this series, we’ll see why MasterCard’s margins declined in fiscal 4Q15.

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