MasterCard Generates Strong Cash Flows, Less Leverage



Cash flow growth

On June 30, 2016, MasterCard (MA) carried debt of $3.3 billion, with a total balance sheet of $16.2 billion. These figures are in line with 2015’s numbers.

In 1H16, MasterCard generated free cash flow from operations of $2.1 billion compared to $1.7 billion in 1H15. The company had total cash and equivalents and liquid investments of ~$5.2 billion on June 30, 2016.

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Dividends and repurchases

MasterCard deploys cash flows for dividends, share repurchases, investments in technology, and expansion. It repurchased 5 million shares of its Class A common stock, forming ~1.6% of the company’s total capitalization, at a cost of $462 million.

On July 21, 2016, the company didn’t purchase any new shares, with $2.7 billion remaining under its current repurchase program authorizations.

MasterCard’s debt-to-equity ratio stood at 54% in 2015. Here’s how some of MasterCard’s peers in the payment processing industry fared with their leverage figures in 2015:

  • Visa (V) – 34%
  • American Express (AXP) – 513%
  • Discover Financial Services (DFS) – 203%

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

Outlook for the full year

MasterCard saw its EPS (earnings per share) rise 10% in 2Q16. The company expects to generate higher net EPS on stable currency in 2016. Its revenue momentum is expected to continue in 3Q16, led by growth in Europe and Asia.

MasterCard’s expense management has been strong, resulting in stable margins. The company’s main competitive advantages are accessibility, convenience, and security. Its brand name, product range, and track record of secure transaction processing give it an edge over new players.

In the next part of this series, we’ll see how MasterCard maintained its margins in 2Q16.


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