Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Mastercard Inc., FCFF 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).
The analysis of cash flow dynamics reveals a strong upward trajectory in both operational liquidity and free cash flow to the firm (FCFF) between 2018 and 2022, characterized by a temporary contraction in 2020 followed by a robust recovery.
- Operating Cash Flow Trends
- Net cash provided by operating activities grew from 6,223 million USD in 2018 to 11,195 million USD by 2022. This progression was interrupted in 2020, where a decrease to 7,224 million USD was observed, representing an 11.7% decline from the 2019 peak. Subsequent growth in 2021 and 2022 demonstrates a strong capacity to generate cash from core business operations, with a total increase of approximately 80% over the full five-year period.
- Free Cash Flow to the Firm (FCFF) Performance
- FCFF closely mirrored the movement of operating cash flows, increasing from 5,844 million USD in 2018 to 10,448 million USD in 2022. After a decline to 6,773 million USD in 2020, FCFF experienced a significant surge in 2021, reaching 8,985 million USD, which constitutes a 32.6% year-over-year increase. The final observed period in 2022 showed further expansion to 10,448 million USD.
- Cash Conversion and Capital Efficiency
- A high and stable conversion rate of operating cash into FCFF is observed throughout the period. FCFF consistently represented between 93% and 95% of net cash provided by operating activities. This narrow variance indicates that capital expenditures and other firm-level investments have remained proportional to operating cash growth, suggesting a predictable and disciplined capital allocation strategy.
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Interest Paid, Net of Tax
Mastercard Inc., interest paid, net of tax 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).
2 2022 Calculation
Cash paid for interest, tax = Cash paid for interest × EITR
= 414 × 15.40% = 64
An analysis of the financial metrics from 2018 to 2022 reveals a sustained increase in cash outflows for interest, net of tax, occurring simultaneously with a general reduction in the effective income tax rate.
- Interest Expenditure Trends
- Cash paid for interest, net of tax, exhibited a consistent and significant upward trajectory over the five-year period. Outflows rose from 125 million USD in 2018 to 350 million USD in 2022, representing a total increase of 180%. The most pronounced acceleration occurred between 2019 and 2021, during which payments more than doubled from 165 million USD to 336 million USD.
- Effective Income Tax Rate (EITR) Evolution
- The effective income tax rate demonstrated a general downward trend, starting at 18.50% in 2018 and concluding at 15.40% in 2022. Despite a marginal increase to 17.40% in 2020, the overall movement indicates a compression of the tax rate by 310 basis points over the analyzed timeframe.
- Comparative Analysis of Fiscal Impacts
- The data indicates a divergence between rising interest costs and a declining tax rate. While the cash burden associated with interest payments grew substantially, the simultaneous reduction in the effective income tax rate suggests a decrease in the overall tax percentage applied to taxable income during this period of increasing leverage or higher borrowing costs.
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Enterprise Value to FCFF Ratio, Current
Mastercard Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 358,700) |
| Free cash flow to the firm (FCFF) | 10,448) |
| Valuation Ratio | |
| EV/FCFF | 34.33 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Accenture PLC | 9.33 |
| Adobe Inc. | 9.08 |
| AppLovin Corp. | 25.37 |
| Cadence Design Systems Inc. | 53.42 |
| Datadog Inc. | 101.44 |
| International Business Machines Corp. | 19.66 |
| Intuit Inc. | 8.39 |
| Microsoft Corp. | 56.64 |
| Oracle Corp. | — |
| Palantir Technologies Inc. | 213.61 |
| Palo Alto Networks Inc. | 74.21 |
| Salesforce Inc. | 13.54 |
| ServiceNow Inc. | 29.77 |
| Synopsys Inc. | 54.55 |
| Workday Inc. | 15.14 |
| EV/FCFF, Sector | |
| Software & Services | 53.70 |
| EV/FCFF, Industry | |
| Information Technology | 79.78 |
Based on: 10-K (reporting date: 2022-12-31).
1 Click competitor name to see calculations.
If the company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.
Otherwise, if the company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.
Enterprise Value to FCFF Ratio, Historical
Mastercard Inc., historical EV/FCFF 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) | ||||||
| Enterprise value (EV)1 | 357,178) | 365,060) | 338,628) | 341,613) | 222,600) | |
| Free cash flow to the firm (FCFF)2 | 10,448) | 8,985) | 6,773) | 7,620) | 5,844) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 34.19 | 40.63 | 50.00 | 44.83 | 38.09 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Accenture PLC | 16.99 | 24.76 | 17.90 | — | — | |
| Adobe Inc. | 20.82 | 33.61 | 40.43 | — | — | |
| AppLovin Corp. | — | — | — | — | — | |
| Cadence Design Systems Inc. | 44.54 | 35.05 | — | — | — | |
| Datadog Inc. | 66.00 | 198.40 | — | — | — | |
| International Business Machines Corp. | 16.47 | 13.10 | — | — | — | |
| Intuit Inc. | 32.85 | 48.64 | — | — | — | |
| Microsoft Corp. | 30.26 | 36.19 | — | — | — | |
| Oracle Corp. | 31.60 | 16.36 | — | — | — | |
| Palantir Technologies Inc. | 82.97 | 66.45 | — | — | — | |
| Palo Alto Networks Inc. | 29.30 | 32.74 | — | — | — | |
| Salesforce Inc. | 35.97 | 44.91 | — | — | — | |
| ServiceNow Inc. | 40.87 | 60.12 | — | — | — | |
| Synopsys Inc. | 30.82 | 38.59 | 42.88 | — | — | |
| Workday Inc. | 45.74 | 57.52 | — | — | — | |
| EV/FCFF, Sector | ||||||
| Software & Services | 28.89 | 32.08 | — | — | — | |
| EV/FCFF, Industry | ||||||
| Information Technology | 26.47 | 27.37 | — | — | — | |
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).
3 2022 Calculation
EV/FCFF = EV ÷ FCFF
= 357,178 ÷ 10,448 = 34.19
4 Click competitor name to see calculations.
The financial trajectory between 2018 and 2022 is characterized by a significant expansion in enterprise valuation followed by a period of valuation normalization driven by strong growth in free cash flow to the firm (FCFF).
- Enterprise Value (EV) Trends
- A substantial increase in enterprise value was observed between 2018 and 2019, rising from 222,600 million to 341,613 million. Following this surge, the valuation remained relatively stable, fluctuating between 338,628 million in 2020 and a peak of 365,060 million in 2021, before settling at 357,178 million by the end of 2022.
- Free Cash Flow to the Firm (FCFF) Performance
- Cash flow generation exhibited a general upward trend, increasing from 5,844 million in 2018 to 10,448 million in 2022. A temporary contraction occurred in 2020, where FCFF declined to 6,773 million, but this was followed by a robust recovery in 2021 and 2022, indicating an improved capacity to generate cash relative to the firm's capital structure.
- EV/FCFF Ratio Interpretation
- The EV/FCFF ratio experienced significant volatility, peaking at 50.00 in 2020. This peak was the result of a confluence between a high enterprise value and a temporary dip in free cash flow. However, from 2021 onward, a downward trend is observed, with the ratio falling to 40.63 in 2021 and further to 34.19 in 2022. This decline suggests that the growth in cash flow has outpaced the growth in enterprise value, resulting in a more conservative valuation multiple by the end of the analyzed period.
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