MasterCard (MA 1.33%) is one of those monster companies that needs almost no introduction. It and eternal rival Visa are the world's two top credit card payment processors, with a presence in nearly every market on the globe.
An immense footprint is all well and good, but how healthy is MasterCard's balance sheet these days? Let's open the books and take a peek.
Card consistency
Broadly speaking, MasterCard's key financials tend to move in lockstep. On a year-over-year basis in fiscal 2013, the company's revenue and net profit figures both improved by 13%. Its number of credit and debit cards in circulation grew by 14%, to just under 1.3 billion, while its total assets rose at a slightly higher rate of 17%.
This consistency is a sign of a conservative managerial regime, and the balance sheet reflects that. Current assets (i.e., assets that can relatively quickly be turned into cash) always seem to strongly outpace current liabilities; as of this past June 30 they stood at $10.6 billion and $5.8 billion, respectively.
Another billboard indicating financial conservatism is a light debt load. For years, MasterCard had the lightest one imaginable -- exactly zero at the end of fiscal years 2009, 2011, 2012, and 2013.
But this has changed dramatically. On the balance sheet dated June 30, there's an entry for long-term debt of nearly $1.5 billion, in stark contrast to the adjacent Dec. 31, 2013, column that shows a dash indicating zero. How and why did the company pile on debt, and do investors need to be concerned about this?
Paying on credit
MasterCard has been busy in the acquisition sphere lately. At the beginning of this year, it wrapped up a deal to acquire Provus Bilisim Hizmetleri, a firm that it describes as "Turkey's leading independent payment solution and processing provider." More recently, it closed its buyout of Australian loyalty and rewards services firm Pinpoint. MasterCard didn't provide the financial particulars of either deal.
Regardless, if you're on a bit of a buying spree, why not take advantage of cheap credit? Interest rates are at an unsustainable low at the moment, and with a balance sheet that's been so clean for so long, the company can easily borrow a lot of money at very slim rates.
So there's little reason not to take advantage of the debt market. This past March, MasterCard floated $1.5 billion worth of senior notes. This is a type of bond that takes precedence over other forms of debt such as unsecured notes; in the event of liquidation -- admittedly a very unlikely scenario for MasterCard -- senior note holders would take precedence over owners of those other securities.
On those notes, $1 billion comes due in 2024 and pays out at 3.375%, while the remainder matures in 2019 and pays 2%. So MasterCard only has to find investments that will return a bit over 3% to make the flotation worth its while, which is not at all a difficult task for a big financial major.
And again, the company has more than enough current assets to take care of its financial obligations, such as the interest on those borrowings. Its current cash and equivalents position alone -- $2.9 billion -- could easily retire both the principal and the interest on the entire issue.
Master financiers
Success in the credit card business is entirely dependent on judging financial solvency. Although MasterCard is only a facilitator of card transactions rather than an issuer (an activity that falls to banks and other financial services), it's nevertheless keenly aware of the importance of keeping a fiscal house in order. Its strong balance sheet indicates how well it's been able to do that lately, and over the course of recent years.
