Stock Analysis on Net
Stock Analysis on Net

Mastercard Inc. (NYSE:MA)

This company has been moved to the archive! The financial data has not been updated since April 27, 2023.

Present Value of Free Cash Flow to the Firm (FCFF)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Mastercard Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

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Year Value FCFFt or Terminal value (TVt) Calculation Present value at 13.83%
01 FCFF0 10,448
1 FCFF1 14,261 = 10,448 × (1 + 36.49%) 12,528
2 FCFF2 18,544 = 14,261 × (1 + 30.04%) 14,311
3 FCFF3 22,917 = 18,544 × (1 + 23.58%) 15,537
4 FCFF4 26,844 = 22,917 × (1 + 17.13%) 15,988
5 FCFF5 29,711 = 26,844 × (1 + 10.68%) 15,545
5 Terminal value (TV5) 1,043,271 = 29,711 × (1 + 10.68%) ÷ (13.83% – 10.68%) 545,847
Intrinsic value of Mastercard Inc. capital 619,756
Less: Long-term debt, including the current portion (fair value) 12,700
Intrinsic value of Mastercard Inc. common stock 607,056
 
Intrinsic value of Mastercard Inc. common stock (per share) $640.45
Current share price $373.67

Based on: 10-K (reporting date: 2022-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Mastercard Inc., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 354,184 0.97 14.23%
Long-term debt, including the current portion (fair value) 12,700 0.03 2.64% = 3.17% × (1 – 16.78%)

Based on: 10-K (reporting date: 2022-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 947,852,601 × $373.67
= $354,184,081,415.67

   Long-term debt, including the current portion (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (15.40% + 15.70% + 17.40% + 16.90% + 18.50%) ÷ 5
= 16.78%

WACC = 13.83%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Mastercard Inc., PRAT model

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Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Interest expense 471 431 380 224 186
Net income 9,930 8,687 6,411 8,118 5,859
 
Effective income tax rate (EITR)1 15.40% 15.70% 17.40% 16.90% 18.50%
 
Interest expense, after tax2 398 363 314 186 152
Add: Dividends 1,968 1,781 1,641 1,408 1,123
Interest expense (after tax) and dividends 2,366 2,144 1,955 1,594 1,275
 
EBIT(1 – EITR)3 10,328 9,050 6,725 8,304 6,011
 
Short-term debt 274 792 649 — 500
Long-term debt, excluding current portion 13,749 13,109 12,023 8,527 5,834
Total Mastercard Incorporated stockholders’ equity 6,298 7,312 6,391 5,893 5,395
Total capital 20,321 21,213 19,063 14,420 11,729
Financial Ratios
Retention rate (RR)4 0.77 0.76 0.71 0.81 0.79
Return on invested capital (ROIC)5 50.83% 42.66% 35.28% 57.59% 51.25%
Averages
RR 0.77
ROIC 47.52%
 
FCFF growth rate (g)6 36.49%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

1 See details »

2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 471 × (1 – 15.40%)
= 398

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 9,930 + 398
= 10,328

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [10,328 – 2,366] ÷ 10,328
= 0.77

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 10,328 ÷ 20,321
= 50.83%

6 g = RR × ROIC
= 0.77 × 47.52%
= 36.49%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (366,884 × 13.83% – 10,448) ÷ (366,884 + 10,448)
= 10.68%

where:

Total capital, fair value0 = current fair value of Mastercard Inc. debt and equity (US$ in millions)
FCFF0 = the last year Mastercard Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Mastercard Inc. capital

FCFF growth rate (g) forecast

Mastercard Inc., H-model

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Year Value gt
1 g1 36.49%
2 g2 30.04%
3 g3 23.58%
4 g4 17.13%
5 and thereafter g5 10.68%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 36.49% + (10.68% – 36.49%) × (2 – 1) ÷ (5 – 1)
= 30.04%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 36.49% + (10.68% – 36.49%) × (3 – 1) ÷ (5 – 1)
= 23.58%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 36.49% + (10.68% – 36.49%) × (4 – 1) ÷ (5 – 1)
= 17.13%