Mastercard Inc. (NYSE:MA)

The period under review demonstrates a generally positive trend in economic profit, although fluctuations are present. Net operating profit after taxes (NOPAT) and invested capital both increased over the five-year period, contributing to the overall economic profit performance. However, the cost of capital remained relatively stable, influencing the magnitude of economic profit generated.

NOPAT Trend

Net operating profit after taxes increased from US$5,750 million in 2018 to US$8,254 million in 2019, representing a substantial gain. A decrease was then observed in 2020, with NOPAT falling to US$6,937 million. 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 period of strong growth followed by a temporary setback and subsequent renewed expansion.

Cost of Capital Stability

The cost of capital exhibited minimal variation throughout the period, ranging between 15.43% and 15.65%. This consistency suggests a stable risk profile and financing structure. The slight fluctuations observed did not materially impact the overall economic profit calculation.

Invested Capital Growth

Invested capital showed a consistent upward trend, increasing from US$11,243 million in 2018 to US$22,365 million in 2021. A slight decrease was noted in 2022, with invested capital settling at US$21,548 million. This growth suggests ongoing investment in operations and expansion initiatives, although the 2022 decrease warrants further investigation.

Economic Profit Performance

Economic profit mirrored the trends in NOPAT and invested capital. It rose from US$3,995 million in 2018 to US$5,958 million in 2019, decreased to US$3,873 million in 2020, and then increased to US$5,672 million in 2021. The highest level of economic profit was achieved in 2022, reaching US$6,290 million. This indicates that the entity consistently generated returns exceeding its cost of capital, with 2022 representing the most profitable year within the observed timeframe.

Overall, the financial performance suggests a business capable of generating substantial economic profit. While a dip occurred in 2020, the subsequent recovery and growth demonstrate resilience and an ability to capitalize on opportunities. The relatively stable cost of capital provides a predictable baseline for evaluating future performance.

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, economic profit generally increased, though not consistently, while invested capital exhibited a more consistent upward trajectory until the final period.

Economic Profit

Economic profit increased from US$3,995 million in 2018 to US$5,958 million in 2019, representing a substantial gain. A subsequent decline was observed in 2020, with economic profit falling to US$3,873 million. The figure recovered in 2021 to US$5,672 million and continued to rise in 2022, reaching US$6,290 million, marking the highest value within the observed timeframe.

Invested Capital

Invested capital showed a consistent increase from US$11,243 million in 2018 to US$22,365 million in 2021. However, a slight decrease was noted in 2022, with invested capital settling at US$21,548 million. This suggests a potential stabilization or optimization of capital deployment in the most recent year.

Economic Spread Ratio

The economic spread ratio initially increased from 35.53% in 2018 to 40.61% in 2019, aligning with the growth in economic profit. A significant decrease occurred in 2020, with the ratio falling to 19.51%, likely due to the disproportionate decline in economic profit relative to invested capital. The ratio then recovered to 25.36% in 2021 and further increased to 29.19% in 2022, indicating improved efficiency in generating returns on invested capital in the latter years. The ratio’s fluctuations suggest a sensitivity to changes in both profitability and capital employed.

The observed trends indicate a dynamic relationship between economic profit, invested capital, and the resulting economic spread ratio. While economic profit has generally trended upwards, the impact of invested capital growth and occasional profit declines has resulted in variability in the economic spread ratio. The recent increase in the economic spread ratio in 2021 and 2022 suggests improving capital efficiency.

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, decrease, and stabilization.

Economic Profit

Economic profit increased from US$3,995 million in 2018 to US$5,958 million in 2019, representing a substantial gain. A subsequent decrease was observed in 2020, with economic profit falling to US$3,873 million. The figure then recovered to US$5,672 million in 2021 and continued to rise to US$6,290 million in 2022, marking the highest value within the observed timeframe. This suggests a sensitivity to external factors or internal strategic shifts, followed by a recovery and continued growth.

Adjusted Net Revenue

Adjusted net revenue generally increased throughout the period. From US$15,022 million in 2018, it rose to US$16,908 million in 2019. A slight decrease occurred in 2020 to US$15,455 million, but revenue rebounded strongly in 2021, reaching US$19,048 million. Continued growth was evident in 2022, with adjusted net revenue reaching US$22,257 million. This consistent revenue growth provides a foundation for the observed economic profit trends.

Economic Profit Margin

The economic profit margin initially increased from 26.59% in 2018 to a peak of 35.24% in 2019, indicating improved profitability relative to revenue. The margin then decreased to 25.06% in 2020, mirroring the decline in economic profit. A recovery to 29.78% occurred in 2021, followed by a further increase to 28.26% in 2022. While the margin did not reach the 2019 high, the stabilization around the 28-30% range in the latter years suggests a maturing profitability level. The fluctuations in the margin closely correlate with changes in economic profit, indicating a strong relationship between profitability and overall financial performance.

In summary, the period was characterized by growth in both economic profit and adjusted net revenue, although economic profit experienced some volatility. The economic profit margin demonstrated a similar pattern, peaking in 2019 and stabilizing in the most recent years. The consistent growth in adjusted net revenue provides a positive outlook, while the fluctuations in economic profit warrant further investigation to understand the underlying drivers.