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, decreased in 2020, and then exhibited further growth 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 years examined.

NOPAT Trend

NOPAT began at US$5,750 million in 2018, rose substantially to US$8,254 million in 2019, then decreased to US$6,937 million in 2020. Subsequent years saw increases, reaching US$9,129 million in 2021 and US$9,638 million in 2022. This indicates a period of strong initial growth, a temporary setback, and a return to growth.

Cost of Capital Stability

The cost of capital showed minimal variation, starting at 17.96% in 2018 and ending at 17.87% in 2022. The highest value recorded was 18.00% in 2019, and the lowest was 17.75% in 2020. This relative stability suggests consistent market conditions and risk assessment over the analyzed timeframe.

Invested Capital Growth

Invested capital increased steadily throughout the period. From US$11,243 million in 2018, it grew to US$14,672 million in 2019, then to US$19,854 million in 2020. Growth continued to US$22,365 million in 2021, before a slight decrease to US$21,548 million in 2022. This consistent expansion suggests ongoing investment in the business.

Economic Profit Performance

Economic profit mirrored the trend in NOPAT, beginning at US$3,731 million in 2018 and increasing to US$5,613 million in 2019. It decreased to US$3,413 million in 2020, then rose to US$5,153 million in 2021, and finally reached US$5,788 million in 2022. The overall upward trajectory indicates that the company is generating returns exceeding its cost of capital.

The observed fluctuations in NOPAT and, consequently, economic profit warrant further investigation to understand the underlying drivers. While invested capital continues to grow, the slight decrease in 2022 could be a point of attention for future analysis.

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 between 2018 and 2022 demonstrates fluctuating performance in economic profit and invested capital, resulting in a corresponding variability in the economic spread ratio. Overall, economic profit increased from 2018 to 2019, decreased in 2020, and then generally trended upward through 2022. Invested capital exhibited a consistent increase from 2018 to 2021, followed by a slight decrease in 2022. The economic spread ratio reflects these movements, showing a peak in 2019, a significant decline in 2020, and a subsequent recovery through 2022.

Economic Profit

Economic profit began at US$3,731 million in 2018 and rose substantially to US$5,613 million in 2019, representing a growth of approximately 50.4%. A decrease was then observed in 2020, with economic profit falling to US$3,413 million. The following year, 2021, saw a recovery to US$5,153 million, and this positive trend continued into 2022, reaching US$5,788 million – the highest value within the observed period.

Invested Capital

Invested capital showed a consistent upward trajectory from 2018 to 2021. Starting at US$11,243 million in 2018, it increased to US$14,672 million in 2019, US$19,854 million in 2020, and peaked at US$22,365 million in 2021. In 2022, invested capital experienced a modest decline to US$21,548 million, the first decrease observed during the period.

Economic Spread Ratio

The economic spread ratio mirrored the fluctuations in economic profit and invested capital. It increased from 33.18% in 2018 to 38.25% in 2019, coinciding with the growth in economic profit. A substantial decrease was then recorded in 2020, with the ratio falling to 17.19%. The ratio recovered in 2021 to 23.04% and continued to rise in 2022, reaching 26.86%, although it did not surpass the 2019 peak. The ratio’s movement suggests a changing relationship between profitability and capital employed.

The observed decline in the economic spread ratio in 2020, despite an increase in invested capital, indicates a potential decrease in the efficiency with which capital was utilized to generate economic profit. The subsequent recovery in 2021 and 2022 suggests improved capital efficiency, but the ratio remained below its 2019 high. The slight decrease in invested capital in 2022, coupled with continued growth in economic profit, contributed to the ratio’s increase during that year.

The economic profit exhibited fluctuations over the five-year period, while the adjusted net revenue demonstrated a generally increasing trend. The economic profit margin showed considerable variability, peaking in 2019 before moderating in subsequent years.

Economic Profit

Economic profit increased from US$3,731 million in 2018 to US$5,613 million in 2019, representing a substantial gain. A decrease was then observed in 2020, with economic profit falling to US$3,413 million. It recovered in 2021 to US$5,153 million and continued to rise in 2022, reaching US$5,788 million – the highest value over the observed period.

Adjusted Net Revenue

Adjusted net revenue consistently increased throughout the period. From US$15,022 million in 2018, it rose to US$16,908 million in 2019, then experienced a slight dip to US$15,455 million in 2020. 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 peaked at 33.20% in 2019, coinciding with the highest relative economic profit and a strong increase in adjusted net revenue. The margin decreased to 22.08% in 2020, likely due to the decline in economic profit despite revenue remaining relatively stable. It partially recovered to 27.06% in 2021 and settled at 26.00% in 2022. While remaining substantial, the margin did not return to the 2019 high, suggesting that growth in economic profit did not keep pace with the growth in adjusted net revenue in the later years.

The observed trends suggest a strong correlation between adjusted net revenue and economic profit, but the economic profit margin indicates that profitability relative to revenue varied. The company demonstrated an ability to generate substantial economic profit, but the margin’s fluctuations warrant further investigation to understand the underlying drivers of cost and revenue dynamics.