Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Mastercard Inc., economic profit calculation
US$ in millions
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 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 9,638 – 18.02% × 21,548 = 5,755
The economic performance between 2018 and 2022 is characterized by a general upward trend in value creation, despite a notable contraction during the 2020 fiscal year. The company demonstrates a consistent ability to generate economic profit, indicating that operating returns have consistently exceeded the cost of capital.
- Net Operating Profit After Taxes (NOPAT)
- NOPAT exhibited significant growth over the five-year period, rising from 5,750 million US$ in 2018 to 9,638 million US$ in 2022. A temporary decline was observed in 2020, where NOPAT dropped to 6,937 million US$, before recovering strongly in 2021 and reaching its peak in 2022.
- Invested Capital and Cost of Capital
- Invested capital saw a substantial increase from 11,243 million US$ in 2018 to a peak of 22,365 million US$ in 2021, followed by a slight contraction to 21,548 million US$ in 2022. Concurrently, the cost of capital remained highly stable, oscillating minimally between 17.90% and 18.15%, suggesting a consistent risk profile and funding cost over the analyzed duration.
- Economic Profit Trends
- Economic profit mirrored the volatility of NOPAT, increasing from 3,713 million US$ in 2018 to 5,590 million US$ in 2019. A sharp decline to 3,383 million US$ occurred in 2020, representing the period's lowest value. However, a robust recovery followed, with economic profit rising to 5,120 million US$ in 2021 and further increasing to 5,755 million US$ by the end of 2022, signifying enhanced efficiency in converting invested capital into value.
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Net Operating Profit after Taxes (NOPAT)
Mastercard Inc., NOPAT calculation
US$ in millions
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 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in deferred revenue.
3 Addition of increase (decrease) in equity equivalents to net income.
4 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 770 × 2.50% = 19
5 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 490 × 21.00% = 103
6 Addition of after taxes interest expense to net income.
7 2022 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 61 × 21.00% = 13
8 Elimination of after taxes investment income.
- 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 $9,638 million respectively. The data show a comparable recovery and expansion post-2020, indicating operational efficiency improvements alongside profitability growth.
- Overall Insights
- Both net income and NOPAT demonstrate resilience and growth over the observed period, despite a contraction in 2020, which may be attributable to broader economic factors impacting that year. The recovery in 2021 and continued growth through 2022 imply effective management strategies and operational execution. The consistency between net income and NOPAT trends highlights alignment between overall profitability and core operating performance.
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Cash Operating Taxes
Mastercard Inc., cash operating taxes calculation
US$ in millions
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).
- 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 $2,543 million in 2022. This sharp rise in the last year suggests increased taxable cash flow or changes in tax payment timing or rates.
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Invested Capital
Mastercard Inc., invested capital calculation (financing approach)
US$ in millions
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 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of deferred revenue.
4 Addition of equity equivalents to total Mastercard Incorporated stockholders’ equity.
5 Removal of accumulated other comprehensive income.
6 Subtraction of marketable securities.
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 $21,548 million was observed, consistent with the drop in stockholders’ equity and the stabilization of total debt.
- Total Reported Debt & Leases
- Exhibits a clear upward trend, increasing by approximately 114% over five years, reflecting increased leverage or funding through leases.
- Total Stockholders’ Equity
- Generally increased from 2018 through 2021, rising by about 36%, but declined by 14% in 2022, possibly signaling reduced retained earnings or share repurchases.
- Invested Capital
- More than doubled from 2018 to 2021, then experienced a minor decrease in the final year, suggesting a peak in invested resources followed by slight contraction.
Overall, the data indicate that the entity has progressively expanded its capital base driven mostly by increasing debt and leases, with equity contributing to growth until 2021. The partial reversal in equity and invested capital levels in 2022 may warrant further examination to understand the underlying causes, such as market conditions, operational performance, or capital structure adjustments.
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Cost of Capital
Mastercard Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 352,662) | 352,662) | ÷ | 366,132) | = | 0.96 | 0.96 | × | 18.62% | = | 17.93% | ||
| Long-term debt, including the current portion3 | 12,700) | 12,700) | ÷ | 366,132) | = | 0.03 | 0.03 | × | 3.17% × (1 – 21.00%) | = | 0.09% | ||
| Operating lease liability4 | 770) | 770) | ÷ | 366,132) | = | 0.00 | 0.00 | × | 2.50% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 366,132) | 1.00 | 18.02% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including the current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 361,441) | 361,441) | ÷ | 377,513) | = | 0.96 | 0.96 | × | 18.62% | = | 17.82% | ||
| Long-term debt, including the current portion3 | 15,300) | 15,300) | ÷ | 377,513) | = | 0.04 | 0.04 | × | 3.06% × (1 – 21.00%) | = | 0.10% | ||
| Operating lease liability4 | 772) | 772) | ÷ | 377,513) | = | 0.00 | 0.00 | × | 2.60% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 377,513) | 1.00 | 17.93% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including the current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 338,737) | 338,737) | ÷ | 354,388) | = | 0.96 | 0.96 | × | 18.62% | = | 17.79% | ||
| Long-term debt, including the current portion3 | 14,800) | 14,800) | ÷ | 354,388) | = | 0.04 | 0.04 | × | 3.12% × (1 – 21.00%) | = | 0.10% | ||
| Operating lease liability4 | 851) | 851) | ÷ | 354,388) | = | 0.00 | 0.00 | × | 2.70% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 354,388) | 1.00 | 17.90% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including the current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 342,692) | 342,692) | ÷ | 352,654) | = | 0.97 | 0.97 | × | 18.62% | = | 18.09% | ||
| Long-term debt, including the current portion3 | 9,200) | 9,200) | ÷ | 352,654) | = | 0.03 | 0.03 | × | 2.91% × (1 – 21.00%) | = | 0.06% | ||
| Operating lease liability4 | 762) | 762) | ÷ | 352,654) | = | 0.00 | 0.00 | × | 2.90% × (1 – 21.00%) | = | 0.00% | ||
| Total: | 352,654) | 1.00 | 18.15% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including the current portion. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 226,254) | 226,254) | ÷ | 233,336) | = | 0.97 | 0.97 | × | 18.62% | = | 18.05% | ||
| Long-term debt, including the current portion3 | 6,500) | 6,500) | ÷ | 233,336) | = | 0.03 | 0.03 | × | 2.80% × (1 – 21.00%) | = | 0.06% | ||
| Operating lease liability4 | 582) | 582) | ÷ | 233,336) | = | 0.00 | 0.00 | × | 2.80% × (1 – 21.00%) | = | 0.01% | ||
| Total: | 233,336) | 1.00 | 18.12% | ||||||||||
Based on: 10-K (reporting date: 2018-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt, including the current portion. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Mastercard Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 5,755) | 5,120) | 3,383) | 5,590) | 3,713) | |
| Invested capital2 | 21,548) | 22,365) | 19,854) | 14,672) | 11,243) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 26.71% | 22.89% | 17.04% | 38.10% | 33.03% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| Accenture PLC | 3.74% | 5.56% | 6.16% | — | — | |
| Adobe Inc. | 6.29% | 8.67% | 0.95% | — | — | |
| AppLovin Corp. | -27.18% | -30.70% | — | — | — | |
| Cadence Design Systems Inc. | 6.51% | 6.73% | — | — | — | |
| CrowdStrike Holdings Inc. | -8.11% | -10.36% | — | — | — | |
| Datadog Inc. | -12.01% | -4.19% | — | — | — | |
| International Business Machines Corp. | -11.25% | -6.11% | — | — | — | |
| Intuit Inc. | -9.95% | -2.42% | 1.03% | — | — | |
| Microsoft Corp. | 18.89% | 27.93% | — | — | — | |
| Oracle Corp. | -7.11% | 1.09% | — | — | — | |
| Palantir Technologies Inc. | -33.12% | -40.58% | — | — | — | |
| Palo Alto Networks Inc. | 3.22% | -5.48% | -6.31% | — | — | |
| Salesforce Inc. | -14.81% | -12.67% | — | — | — | |
| ServiceNow Inc. | 0.68% | 1.89% | — | — | — | |
| Synopsys Inc. | -0.98% | -7.00% | -6.81% | — | — | |
| Workday Inc. | -14.31% | -19.56% | — | — | — | |
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 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 5,755 ÷ 21,548 = 26.71%
4 Click competitor name to see calculations.
The financial performance between 2018 and 2022 is characterized by a period of significant volatility in economic value creation, followed by a strong recovery phase. While the absolute economic profit reached its highest level at the end of the period, the efficiency of capital utilization, as measured by the economic spread ratio, experienced a sharp contraction in 2020 before beginning a steady ascent.
- Economic Profit Trends
- Economic profit demonstrated an overall upward trajectory despite a notable disruption in 2020. After increasing from 3,713 million USD in 2018 to 5,590 million USD in 2019, profit fell to 3,383 million USD in 2020. This was followed by a consistent recovery, reaching 5,120 million USD in 2021 and peaking at 5,755 million USD in 2022.
- Invested Capital Evolution
- Invested capital expanded steadily for the majority of the period, growing from 11,243 million USD in 2018 to a peak of 22,365 million USD in 2021. A slight contraction occurred in 2022, with capital decreasing to 21,548 million USD, suggesting a shift toward more optimized capital management or a reduction in asset intensity.
- Economic Spread Ratio Analysis
- The economic spread ratio exhibited the most significant volatility, reflecting the relationship between profit generation and capital investment. The ratio peaked at 38.10% in 2019 but plummeted to 17.04% in 2020, coinciding with a simultaneous drop in economic profit and a sharp increase in invested capital. Since 2020, the ratio has recovered steadily, rising to 22.89% in 2021 and further to 26.71% in 2022.
The analysis indicates that the decline in the economic spread ratio during 2020 was driven by a dual pressure of reduced economic profit and an expanding capital base. However, the subsequent years demonstrate an improvement in operational efficiency, as economic profit continued to grow while invested capital stabilized, leading to a progressive restoration of the economic spread.
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Economic Profit Margin
Mastercard Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 5,755) | 5,120) | 3,383) | 5,590) | 3,713) | |
| Net revenue | 22,237) | 18,884) | 15,301) | 16,883) | 14,950) | |
| Add: Increase (decrease) in deferred revenue | 20) | 164) | 154) | 25) | 72) | |
| Adjusted net revenue | 22,257) | 19,048) | 15,455) | 16,908) | 15,022) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 25.86% | 26.88% | 21.89% | 33.06% | 24.72% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| Accenture PLC | 1.80% | 2.85% | 3.13% | — | — | |
| Adobe Inc. | 7.33% | 10.81% | 1.37% | — | — | |
| AppLovin Corp. | -50.89% | -61.46% | — | — | — | |
| Cadence Design Systems Inc. | 6.50% | 6.83% | — | — | — | |
| CrowdStrike Holdings Inc. | -12.70% | -21.54% | — | — | — | |
| Datadog Inc. | -8.30% | -3.32% | — | — | — | |
| International Business Machines Corp. | -19.48% | -11.62% | — | — | — | |
| Intuit Inc. | -19.15% | -3.07% | 1.16% | — | — | |
| Microsoft Corp. | 18.10% | 23.18% | — | — | — | |
| Oracle Corp. | -13.05% | 2.15% | — | — | — | |
| Palantir Technologies Inc. | -55.57% | -66.84% | — | — | — | |
| Palo Alto Networks Inc. | 3.75% | -7.37% | -10.24% | — | — | |
| Salesforce Inc. | -41.11% | -29.06% | — | — | — | |
| ServiceNow Inc. | 0.54% | 1.64% | — | — | — | |
| Synopsys Inc. | -1.38% | -11.14% | -11.69% | — | — | |
| Workday Inc. | -19.39% | -25.52% | — | — | — | |
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 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted net revenue
= 100 × 5,755 ÷ 22,257 = 25.86%
3 Click competitor name to see calculations.
Between 2018 and 2022, the organization experienced substantial growth in adjusted net revenue and a volatile yet overall upward trajectory in economic profit. Adjusted net revenue increased from 15,022 million US$ in 2018 to 22,257 million US$ by 2022, reflecting a consistent expansion of the business scale, despite a brief contraction observed in 2020.
- Economic Profit Trends
- Economic profit exhibited significant fluctuations over the five-year period. Starting at 3,713 million US$ in 2018, the figure rose to 5,590 million US$ in 2019 before experiencing a sharp decline to 3,383 million US$ in 2020. A strong recovery followed, with economic profit climbing to 5,120 million US$ in 2021 and reaching a period high of 5,755 million US$ in 2022, indicating a restored and improved capacity to generate value above the cost of capital.
- Economic Profit Margin Analysis
- The economic profit margin reached a peak of 33.06% in 2019, followed by a trough of 21.89% in 2020. While the margin recovered to 26.88% in 2021, it slightly moderated to 25.86% in 2022. This indicates that while absolute economic profit increased in 2022, the efficiency of value creation relative to adjusted net revenue did not return to the peak levels seen in 2019.
- Revenue and Profitability Correlation
- A positive correlation is observed between the growth of adjusted net revenue and the recovery of economic profit following the 2020 dip. However, the fact that the 2022 economic profit margin remained lower than the 2019 margin, despite significantly higher revenue, suggests that the cost of capital or operational expenses scaled alongside revenue growth, slightly tempering the margin expansion.
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