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MasterCard’s Leverage Is Comfortable for Expansion, Acquisitions


Dec. 4 2020, Updated 10:50 a.m. ET

Cash flow generation

MasterCard (MA) has debt of $3.3 billion with a total balance sheet of $15.9 billion as of March 31, 2016. This compares to $16.2 billion in 4Q15.

In 1Q16, the company generated free cash flow from operations of $1.0 billion compared to $0.9 billion in the prior year’s quarter. The company had total cash and equivalents and liquid investments of about $4.9 billion as of March 31, 2016.

Dividends and repurchases

MasterCard deploys cash flows for dividends, share repurchases, investments in technology, and expansion. It repurchased 15 million shares of its Class A common stock, forming approximately 5% of the company’s total capitalization, at a cost of $1.4 billion.

As of April 21, 2016, the company repurchased 3 million shares at $288 million, with $2.9 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 leverages 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 (IVV).

2016 outlook

MasterCard saw its EPS (earnings per share) fall by 3% in 1Q16. The company expects to generate higher net EPS on stable currency in 2016. Its revenue momentum is expected to continue in 2Q16, led by growth in 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 give it an edge over new players.

In the next part of this series, we’ll see how MasterCard maintained its margins in 1Q16.

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