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Visa Inc: Inside the Numbers 2016 $V

Visa Inc: Inside the Numbers, December 2016

Using the analysis below, I will analyze the past three years of Visa Inc’s (V) performance. I will look at Visa’s past profitability, debt and capital, and operating efficiency. Based on this information, we will look for strengths and weaknesses in the company’s fundamentals. This should give us an understanding of how the company has fared over the past few years and will give us an idea of what to expect in the future.

Profitability

Profitability is a class of financial metrics used to assess a business’s ability to generate earnings compared with expenses and other relevant costs incurred during a specific period of time. In this section, we will look at four tests of profitability. They are net income, operating cash flow, return on assets and quality of earnings. From these four metrics, we will establish if the company is making money and gauge the quality of the reported profits.

 

1 Net Income
Net income FY 2014 $5,438
Net income FY 2015 $6,328
Net income FY 2016 $5,991
Percentage Difference 10.17%
2 Operating Income
Operating Income FY 2014 $7,697
Operating Income FY 2015 $9,064
Operating Income FY 2016 $7,883
Percentage Difference 2.42%
3 ROA = Net Income / Total Assets
Net income FY 2014 $5,438
Net income FY 2015 $6,328
Net income FY 2016 $5,991
Total Assets FY 2014 $38,569
Total Assets FY 2015 $40,236
Total Assets FY 2016 $64,035
Return on Assets FY2014 14.10%
Return on Assets FY2015 15.73%
Return on Assets FY2016 9.36%

Debt & Capital

The Debt and Capital section establishes if the company is sinking into debt or digging its way out. It will also determine if the company is growing organically or raising cash by selling off stock.

4 Total Liabilities to Total Assets = TL/A ratio
Total Liabilities FY 2014 $11,156
Total Liabilities FY 2015 $10,394
Total Liabilities FY 2016 $31,123
Increase In Liabilities $19,967
Total Assets FY 2014 $38,569
Total Assets FY 2015 $40,236
Total Assets FY 2016 $64,035
Increase in Assets $25,466
Assets have increased over  
liabilities by: $5,499

Working Capital

Working Capital is a general and quick measure of the liquidity of a firm. It represents the margin of safety or cushion available to the creditors. It is an index of the firm’s financial stability. It is also an index of technical solvency and an index of the strength of working capital.

Current Ratio = Current Assets / Current Liabilities
Current Assets FY 2014 $9,562
Current Assets FY 2015 $10,892
Current Assets FY 2016 $14,313
Current Liabilities FY 2014 $6,006
Current Liabilities FY 2015 $5,374
Current Liabilities FY 2016 $8,046
Current Ratio FY 2014 1.59
Current Ratio FY 2015 2.03
Current Ratio FY 2016 1.78
Well above 1 – (Under 1 a red flag)
6 Common Shares Outstanding
FY 2014 2,524
FY 2015 2,457
Current 2,438
No Significant Move

 

Operating Efficiency

Operating efficiency is a market condition that exists when participants can execute transactions and receive services at a price that equates fairly to the actual costs required to provide them. An operationally efficient market allows investors to make transactions that move the market further towards the overall goal of prudent capital allocation without being chiseled down by excessive frictional costs, which would reduce the risk/reward profile of the transaction.

7 Gross Margin: Gross Income/Revenue
Gross Income FY 2014 $10,079
Gross Income FY 2015 $11,617
Gross Income FY 2016 $10,647
Revenue FY 2014 $12,702
Revenue FY 2015 $13,880
Revenue FY 2016 $15,082
Gross Margin FY 2014 79.35%
Gross Margin FY 2015 83.70%
Gross Margin FY 2016 70.59%
8 Asset Turnover: Revenue Growth vrs Total Asset Growth
Revenue FY 2014 $12,702
Revenue FY 2015 $13,880
Revenue FY 2016 $15,082
Difference 18.74%
Total Assets FY 2014 $38,569
Total Assets FY 2015 $40,236
Total Assets FY 2016 $64,035
Difference 66.03%
Indicates the Company is becoming less efficient as Revenue = 18.74% vrs Assets = 66.03%.

Conclusion

Based on the information above we can see that Visa has produced strong results from a fundamental point of view. Even though Visa showing strong results there are a few factors that an investor should keep an eye on. Revenues over the past three years, have increased by 18.06%, but the assets supporting that revenue has increased by 66.03%. This suggests that Visa has not been as efficient in creating their revenue as they have been in the past. The ROA has come off a bit supporting the efficiency issue stated earlier in the paragraph. Positive attributes include strength in the TL/A ratio and an increase in net income. Based on the results above we can see that the company has produced good results but is showing some signs of weakness. As an investor in Visa, I will keep an eye on these factors moving forward. Some of these factors may be a contributing to the point that over the past year the stock price has been consolidating.

For more info on Visa read:

Visa Inc: DCF Calculation Visa Inc. $V

and

Visa Inc: Fundamental Analysis WACC, Cost of Debt and Cost of Equity $V

I am long Visa

 

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