Mastercard Inc. (NYSE:MA)

The period under review demonstrates a generally positive trend in economic profit, though with some fluctuation. Net operating profit after taxes (NOPAT) increased significantly from 2018 to 2019, experienced a decline in 2020, and then resumed an upward trajectory through 2022. Invested capital consistently increased over the period, with the largest increase occurring between 2019 and 2020. The cost of capital remained relatively stable, fluctuating within a narrow range throughout the five years.

NOPAT Trend

NOPAT began at US$5,750 million in 2018 and rose substantially to US$8,254 million in 2019, representing a significant improvement in operational profitability. A decrease to US$6,937 million was observed in 2020, potentially due to unforeseen economic conditions or company-specific factors. Subsequent years saw recovery, with NOPAT reaching US$9,129 million in 2021 and further increasing to US$9,638 million in 2022. This indicates a strong recovery and continued growth in core business operations.

Cost of Capital Stability

The cost of capital exhibited minimal variation across the observed period, ranging from 17.77% to 18.02%. This suggests a consistent risk profile and financing structure for the entity. The relative stability allows for a more reliable assessment of economic profit, as changes are less likely to be driven by fluctuations in the cost of funding.

Invested Capital Growth

Invested capital showed a consistent upward trend, increasing from US$11,243 million in 2018 to US$21,548 million in 2022. The most substantial increase occurred between 2019 and 2020, growing by US$5,182 million. This growth suggests ongoing investment in the business, potentially through capital expenditures or acquisitions, to support future expansion and profitability.

Economic Profit Performance

Economic profit mirrored the trend in NOPAT, increasing from US$3,728 million in 2018 to US$5,610 million in 2019, decreasing to US$3,409 million in 2020, and then rising to US$5,149 million in 2021 and US$5,783 million in 2022. The highest economic profit was recorded in 2022, indicating the entity generated value for its investors above the cost of capital during that year. The fluctuations in economic profit correlate with the changes in NOPAT, demonstrating the impact of operational performance on value creation.

Overall, the entity demonstrated a capacity to generate economic profit throughout the period, with a clear upward trend when considering the beginning and end points. While a dip occurred in 2020, the subsequent recovery and growth suggest a resilient business model and effective capital allocation strategies.

Net Income

The net income exhibited a general upward trend over the five-year period. Starting at $5,859 million in 2018, it increased notably to $8,118 million in 2019. Following this peak, there was a decline to $6,411 million in 2020. However, the net income recovered in the subsequent years, reaching $8,687 million in 2021 and further increasing to $9,930 million by the end of 2022. This suggests a strong recovery and growth trajectory after a dip in 2020.

Net Operating Profit After Taxes (NOPAT)

The NOPAT values similarly reflect a pattern consistent with net income. It rose from $5,750 million in 2018 to $8,254 million in 2019. A decline was observed in 2020, with NOPAT reducing to $6,937 million. Subsequently, there was a steady increase across 2021 and 2022, reaching $9,129 million and $9,638 million respectively. The data show a comparable recovery and expansion post-2020, indicating operational efficiency improvements alongside profitability growth.

Overall Insights

Both net income and NOPAT demonstrate resilience and growth over the observed period, despite a contraction in 2020, which may be attributable to broader economic factors impacting that year. The recovery in 2021 and continued growth through 2022 imply effective management strategies and operational execution. The consistency between net income and NOPAT trends highlights alignment between overall profitability and core operating performance.

Income tax expense

The income tax expense demonstrated moderate fluctuations over the five-year period. Beginning at $1,345 million in 2018, it increased notably to $1,613 million in 2019, suggesting a rise in taxable income or a change in tax policies. In 2020, the expense decreased to $1,349 million, potentially reflecting decreased profitability or tax adjustments during that year. Subsequently, it rose again to $1,620 million in 2021 and further to $1,802 million in 2022, indicating a consistent upward trend in tax obligations in the latter years.

Cash operating taxes

Cash operating taxes exhibited some variability with a clear upward trend toward the end of the period. Starting at $1,606 million in 2018, the figure edged up slightly to $1,651 million in 2019 before dropping to $1,356 million in 2020. This reduction might be indicative of lower taxable cash operating profits or tax deferrals. However, a substantial increase occurred in 2021, with cash operating taxes reaching $1,782 million, followed by a significant spike to $2,543 million in 2022. This sharp rise in the last year suggests increased taxable cash flow or changes in tax payment timing or rates.

The financial data indicates several notable trends over the five-year period ending December 31, 2022. First, total reported debt and leases have consistently increased year over year, rising from $6,916 million in 2018 to $14,793 million in 2022. This near doubling suggests an increasing reliance on debt financing or lease obligations.

In contrast, total stockholders’ equity showed a generally positive trend until 2021, moving from $5,395 million in 2018 to a peak of $7,312 million in 2021. However, there was a decline in equity in 2022 to $6,298 million, indicating a potential erosion of owners' residual interest in the company during that final year.

Invested capital, which encompasses the total of debt and equity invested in the company, rose steadily from $11,243 million in 2018 to a high of $22,365 million in 2021. This represents almost a doubling over the period. In 2022, a slight decrease to $21,548 million was observed, consistent with the drop in stockholders’ equity and the stabilization of total debt.

Total Reported Debt & Leases

Exhibits a clear upward trend, increasing by approximately 114% over five years, reflecting increased leverage or funding through leases.

Total Stockholders’ Equity

Generally increased from 2018 through 2021, rising by about 36%, but declined by 14% in 2022, possibly signaling reduced retained earnings or share repurchases.

Invested Capital

More than doubled from 2018 to 2021, then experienced a minor decrease in the final year, suggesting a peak in invested resources followed by slight contraction.

Overall, the data indicate that the entity has progressively expanded its capital base driven mostly by increasing debt and leases, with equity contributing to growth until 2021. The partial reversal in equity and invested capital levels in 2022 may warrant further examination to understand the underlying causes, such as market conditions, operational performance, or capital structure adjustments.

The period under review demonstrates fluctuating performance in economic profit and invested capital, resulting in a corresponding variability in the economic spread ratio. Overall, the economic spread ratio exhibits an increasing trend, though with significant interim volatility.

Economic Profit

Economic profit increased from US$3,728 million in 2018 to US$5,610 million in 2019, representing substantial growth. However, it then decreased to US$3,409 million in 2020, before recovering to US$5,149 million in 2021 and further increasing to US$5,783 million in 2022. This suggests sensitivity to external factors or internal strategic shifts impacting profitability.

Invested Capital

Invested capital consistently increased from US$11,243 million in 2018 to US$22,365 million in 2021. A slight decrease was observed in 2022, with invested capital reported at US$21,548 million. This indicates a period of significant capital deployment followed by a minor adjustment, potentially reflecting optimization efforts or changes in investment strategy.

Economic Spread Ratio

The economic spread ratio rose from 33.16% in 2018 to 38.23% in 2019, mirroring the increase in economic profit. The ratio experienced a substantial decline to 17.17% in 2020, coinciding with the decrease in economic profit. Subsequent increases were observed in 2021 (23.02%) and 2022 (26.84%), indicating improved efficiency in generating returns on invested capital. The ratio’s overall upward trajectory suggests a strengthening ability to create value, despite the fluctuations.

The interplay between economic profit and invested capital is evident in the economic spread ratio. While invested capital generally increased, the ratio’s performance is heavily influenced by the fluctuations in economic profit. The 2020 decline highlights the importance of maintaining profitability alongside capital investment to ensure consistent value creation.

The period between 2018 and 2022 demonstrates fluctuating, yet generally positive, performance in economic profit and its relationship to adjusted net revenue. Economic profit exhibited volatility, while the economic profit margin showed a similar pattern of increase and decrease, ultimately stabilizing towards the end of the observed timeframe.

Economic Profit

Economic profit increased from US$3,728 million in 2018 to US$5,610 million in 2019, representing a substantial gain. A subsequent decrease was observed in 2020, with economic profit falling to US$3,409 million. The figure then recovered to US$5,149 million in 2021 and continued to rise to US$5,783 million in 2022, marking the highest value within the analyzed period.

Adjusted Net Revenue

Adjusted net revenue generally trended upwards throughout the period. It increased from US$15,022 million in 2018 to US$16,908 million in 2019. A slight decrease occurred in 2020, with revenue at US$15,455 million. Subsequent years saw significant growth, reaching US$19,048 million in 2021 and US$22,257 million in 2022.

Economic Profit Margin

The economic profit margin initially increased from 24.82% in 2018 to 33.18% in 2019, coinciding with the rise in economic profit. A notable decline was recorded in 2020, with the margin falling to 22.06%. The margin then partially recovered to 27.03% in 2021, followed by a further increase to 25.98% in 2022. While fluctuating, the margin remained above 22% throughout the period, indicating consistent economic value creation. The margin’s stabilization in the final year suggests a potential leveling off of profitability relative to revenue.

The observed fluctuations in economic profit and margin warrant further investigation to determine the underlying drivers. The correlation between revenue growth and profit margin should be examined to understand the factors influencing profitability. Despite the volatility, the overall trend suggests a capacity to generate economic profit, with 2022 representing the strongest performance in terms of both profit and revenue.