Applied Financial Management

Various companies are affected by the financial statements they prepare to evaluate their performances. Financial ratios mainly play a significant role in assessing the company’s performance and as a result, should not be ignored in any way to achieve the desired objectives of the company which is majorly higher profits at minimum operating costs. This group in particular settled on two companies namely American Express and Visa Incorporation companies with the aim of evaluating their performances and making valid comparisons and how their future performances would be regarding evaluation by financial ratios.

In the assessment of a company’s profitability ratio analysis is always carried out. In profitability ratio analysis, the following rates are looked at: Gross profit margin, operating profit ratio margin, net profit margin, return on capital employed, liquidity ratio analysis and efficiency ratio analysis. Foremost, the gross profit margin is an imperative ratio in determining the profitability of a company. Considering the two companies, Visa Incorporation and American Express, we find that Visa Incorporation has accrued much profit compared to American Express. This profitability can be attributed to high level of innovation and invention which leads to greater production, efficient means of selling products and also better payment methods which are more secure. Also, Visa Inc. might have had better advertising strategies which led to increased demand for their products. Even after the consideration of the costs of advertising, the company was still able to realize greater profits hence putting it in a better position to compete in the market.

Incorporation, due to its high profits attract more investors to invest in the company. This puts the company in a better position to compete as it has adequate capital to carry out the innovation activities which are aimed at improving the quality of its products that attract more sales hence more profit. This investment by investors also puts the Visa Inc. to carry out market research to help realize the various needs of the market hence filling the gaps to achieve more sales compared to its competitor American Express company.

Another factor that might contribute to greater profits is efficient management of the company. With proper management, Visa Inc. can realize long-term growth and profitability. The efficient management ensures the employees are motivated to ensure they provide best services to the customers. It also ensures proper and appropriate decisions are made regarding the development activities of the company to avoid over-stretching of company funds and ensuring resources are properly allocated to avoid wastage.

 

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =18,880/13880

=1

=12702/12702

=1

=11778/11778

=1

=10889/10889

=1

=9777/9777

=1

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Gross profit/ Revenue =24809/24809

=1

=26543/26543

=1

=25750/25750

=1

24998/24998

  =1

23776/23776

=1

 

 

  Visa Inc  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=7165/10998

      =65.1%

=7209/11543

    =62.5%

 
Revenue per employee 2015 2014 2013 2012 2011  
Revenue/ no of employees =13880,000,000/11300

=1,228,319

12702,000,000/9500

1,337,053

=11778,000,000/9500

=1,239,789

 

=11578,000,000/9500

=1,129,789

 

 

=11378,000,000/9500

=1,039,789

 

 

 

 

 

 

  American Express Company  
Gross profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7788/25750

=29.6%

=7543/25750

=28.4%

 
Revenue per employee 2015 2014 2013 2012 2011  
Revenue/ no of employees =24809,000,000/54800

=452,719

 

=25543,000,000/53,500

=477,439

 

=25750,000,000/62,800

=410,031

 

=25850,000,000/62,800

=412,031

 

 

=25450,000,000/64,650

=408,042

 

 

 

 

 

The other profitability ratio is operating profit margin ratio. This ratio relates a company’s operating profit to the net sales. It indicates the company’s ability to cater for all its operational expenses at costs lower than the operating profits. Looking at the two companies under consideration, we notice that Visa Inc. has had an increasing operating profit though not at a constant rate. This clearly indicates that the company can cater for all its operating costs without interfering with the operating profits realized hence any willing investor would invest in Visa Inc. On the other hand, American Express Company has had a decreasing operating profit margin which clearly shows that the company has its operating expenses taking the greater part of its revenue leaving it with little-operating profit.

Visa Inc. might be realizing higher operating profit margins due to the following reasons: Reduction in the proportion of non-production overheads due to the large economies of scale it achieves which ensures that fixed expenses such as salaries paid to employees are well distributed over the greater number of sales units. Also, the Visa Inc. might have also put proper cost curtailment measures, for instance, ensuring that there is no overstaffing which ensures that operating expenses are reduced to help ensure the operating profit is not tampered with.

On the other hand in American Express Company, the operating profit margin ratio might have decreased due increasing costs of advertisement to help market its products, and employment of new skilled staff who can come up with innovative ways of production. This would help the company compete with its competitor effectively by producing high-quality products which meet customers’ expectations.

  Visa Inc  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue =9064/13880

=65.3%

=7697/12702

=60.6%

=7224/11778

=61.3%

=6487/10889

   =60.9%

 

6254/10231

   =58.7%

 

 

 

 

 

 

  American Express Company  
Gross Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit/Revenue 7938/24809

=32%

8991/25543

= 35.2%

=7888/25750

=30.6%

=7888/25750

=30.6%

=7888/25750

=30.6%

 

 

The other profitability ratio is the net profit margin. This measure is crucial to a company as it helps to evaluate the percentage of returns a company gets after taking into account all the operating expenses including tax expenditure. A company with higher net profit margins has greater ability to change the prices of its products to even a lower level in the market making it enjoy a competitive advantage in the competitive market. This measure also helps the company’s management to formulate cost control models.

From the net profit margin calculations, Visa Inc. generates profit more than American Express after the tax has been deducted. Visa Inc. has had an increasing rate of the net profit margin of 3.3% since 2013. This clearly indicates that the company has adequate finances it can use for business expansion which results in increased revenue to the enterprise. On the other hand, American Express Company has had its net profit margin declining over the years. Due to this decrease, firms willing to invest in the American Express Company will be less attracted to this company as they are not sure of the company’s net profit after tax. On the other hand, the investors will invest in Visa Inc. without much fear as they are assured of profits.

 

  Visa Inc  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =6328/13880

=45.6%

=5438/12702

=42.8%

=4980/11778

=42.3%

=4956/11778

=42.1%

=4895/11778

=41.5%

 

 

  American Express Company  
Net Profit Margin 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Net Profit profit/Revenue =5163/24809

=20.8%

=5885/25543

= 23%

=5359/25750

=20.8%

=5359/25750

=20.8%

=5359/25750

=20.8%

 

 

Return on capital employed is also a paramount profitability ratio that has to be evaluated in any particular company. This rate is used by companies to ascertain their performance in the market, and it majorly relates the operating profit of a corporation to the total capital invested during a particular period. Higher Return on Capital Employed indicates that the company can generate more revenue per every amount invested by the shareholders of the company and lower ROCE shows the dismal performance of the company hence willing investors would opt not to invest in such a company. ROCE is a different profitability ratio as it is a long-term rate which takes into consideration the performance of business assets about long-term financing.

Analysis of ROCE in the two firms gives different outcomes. Visa Inc. has its ROCE increasing since 2013, and by 2015 it had increased by 3.8%. This translated into an excellent financial performance of the company. Specifically, for every $4 invested, the business was able to generate 26.6% interest. This has made Visa Inc. be a promising investment for the prospective shareholders.

On the other hand, American Express Company has been experiencing a slight increase in the $ invested with the $ earning 8.9% which comparatively is still lower to that of Visa Inc. and as a result investors would still prefer investing in Visa Inc. due to its higher ROCE. Looking at Asset turnover ratio, Visa Inc. showed a significant increase in returns while American Express generated a lower value for every dollar that was spent on the capital. This indicates that Visa Inc. uses its fixed assets efficiently to generate more revenue and therefore an increase in their capital would generate more funds for the company.

  Visa Inc  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.653*0.408

=26.6%

=0.606*0.39

=23.6%

 

=0.613*0.372

=22.8%

=0.623*0.278

=22.4%

=0.617*0.364

=22.6%

 

 

ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =13880/(39,367-5355)

=40.8%

 

12702/(38,569-6006)

= 39%

 

=11778/(35956-4335)

=37.2%

=24809/ (161,184-72,040)

=35.8%

=25543/(159,103-59598)

=34.7%

 

 

 

  American Express Company  
ROCE 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating profit margin* Asset Turnover =0.32*0.278

=8.9%

=0.352*0.257

=8.8%

=0.306*0.269

=8.2%

=0.295*0.254

=7.5%

 

=0.287*0.286

=8.1%

 
ATO 2015 2014 2013 2012 2011  
Annual Revenue/(Total assets-Current liability) =24809/ (161,184-72,040)

=27.8%

=25543/(159,103-59598)

=25.7%

=25750/(153,375-57,814)

=26.9%

=25675/(153,375-57,814)

=26.5%

=25768/(159,103-59598)

=26.2%

 

 

Apart from profitability ratios, we have liquidity ratios which also play a crucial role in evaluating the performance of a particular company. Liquidity ratio is a ratio used by corporations to identify whether a firm can meet its short-term obligations. Investors always look for this ratio to help them determine if the enterprise can fulfill its short-term obligations since an operation that cannot meet this requirement is considered as a highly risky business which can be declared bankrupt anytime. Liquidity ratios are majorly three namely: Current ratio, Quick ratio, and Cash ratio.

The current ratio is a critical ratio as it measures the relative relationship between the company’s current assets and current liabilities. It ensures the firm can meet its short-term obligation by using the most liquid assets. Taking a look at the two companies, Visa Inc. and American Express, it can be concluded that both societies are in a position to meet their short-term obligation although Visa Inc. is in a better position to pay. Visa can pay 1.9 times its current obligation while American Express is in a position to pay up to 1.7 times its current liability making Visa Inc. to be a better alternative for investors to invest in since it has a higher ability to pay its current liability.

  Visa Inc.  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =10,021/5355

=1.9

=9562/6006

=1.6

=7822/4335

1.8

=7657/4098

=1.8

 

=7345/4289

   =1.7

 

 

 

 

  American Express Company  
Liquidity Ratio ( Current ratio) 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Current assets /current liabilities =124136/72040

=1.7

=95640/59598

=1.6

=55772/57841

= 1

54755/53654

    =1.0

67845/54443

   =1.3

 

 

 

The other ratio is Efficiency ratio. This ratio mainly considers how a firm can efficiently utilize its assets and how they are managing their liabilities. Some of the ratios used in efficiency ratio analysis include inventory turnover ratio which helps a company can measure its inventory level. In the case where the inventory level is low, then it would mean that the firm is overstocking its inventory or it is faced with difficulties in regards to stock sales. Both the two companies, Visa Inc. and American Express, do not have inventory turnover ratio since they are service providers and his one major limitation of the ratio analysis when used in the evaluation of a firm’s performance.

Cash coverage ratio is also used in financial ratio analysis. This ratio helps determine the amount of cash that is available to pay long-term lenders their interest. It gives the relationship between operating cash available and the company’s operating profit. It is a requirement that ratio is kept at 1:1 since if it is lower than this, it gives out a negative impression of the firm’s inability to pay long-term debt interest. Visa Inc. has a lower ratio compared to American Express Company which has its cash coverage ratio higher than 1:1 throughout the financial years. It is, therefore, a responsibility of Visa Inc. management to work on ways of increasing their cash coverage ratio to compete favorably with its competitor.

  Visa Inc  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 6584/9064

=0.726

7205/7697

=0.936

3022/7224

=0.418

2985/7274

=0.410

 

2856/7320

=0.390

 

 

 

  American Express Company  
Cash coverage ratio 2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Operating cash flow/operation profit 10972/7938

=1.382

10990/8991

=1.22

8547/7888

=1.08

8348/7682

   =1.07

 

8156/7567

=1.04

 

 

 

 

There are also other ratios that are used to analyze capital structure of any particular company. These rates help to measure the ability of a company to meet its financial obligations. These ratios include Debt to equity ratio, Debt to capital ratio, and Interest coverage ratio. Foremost, the debt to equity ratio is a ratio used to determine the riskiness of the firm. This ratio indicates to the shareholder and debt owners the much they are contributing to the business capital. In the case where the debt to capital ratio is high, then shareholders should expect to earn low amounts from their shares since the firm has much interest to be cleared by the limited return obtained from its operations.

Debt to capital ratio is also one of the solvency ratios that is used to measure the proportion of interest-bearing debts to the total shareholder equity. In the case of the high rate of debt to capital, the company will be exposed to high insolvency risk, and therefore firms are advised not to use more debts to finance its activities since this is viewed negatively by investors and most financial institution. From this analysis, Visa Inc. does not use any debt in its capital and is thus financed by its owners. This company is therefore in a sound financial position and considered to be a risk-free firm. On the other hand, American Express has debt capital that amounts to 5 times the total equity and as a result is a risky business to venture into as its debt to equity is more than the prescribed rate of two.

The other ratio used to analyze capital structure is interest coverage ratio which shows the ability of a company to protect the interest of long-term creditors of the enterprise. Creditors can only be sure of their protection when the ratio is two. In the case of the two firms, the ratio was at zero since the two companies did not pay out interest to long-term creditors.

  Visa Inc  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

0/39,367

= 0

0/38,569

=0

0/35,956

=0

0/32754

=0

0/29543

=0

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

9525/18073

=0.53

11156/18299

=0.61

9086/18875

=0.48

9076/18743

=0.41

8957/118579

=0.33

 

 

Interest coverage

(operating profit/interest paid)

9064/0

=0

7697/0

=0

7224/0

=0

6876/0

=0

6543/0

=0

 

 

 

 

  American Express Company  
  2015 $ 2014 $ 2013 $ 2012 $ 2011 $  
Debt /Equity ratio

(Total liabilities/total capital)

108,279/20673

=5.24

106253/20673

=5.13

102556/19496

=5.26

101,279/19673

=5.10

99453/19082

=4.98

 

 

Debt/Capital Ratio

(total liability/shareholders equity)

140,511/13542

=10.38

138,430/13,079

=10.58

133,879/12415

=10.78

130,511/11564

=10.54

129678/11467

=10.32

 

 

Interest coverage

(operating profit/interest paid)

7938/0

=0

8991/0

=0

7888/0

=0

7767/0

=0

7532/0

=0

 

 

 

The cost of equity refers to the return a firm theoretically pays to its equity investors to compensate for the risk they undertake by investing their capital. Companies always acquire money from other institutions to help them in their operations and growth. Capital investors need to be rewarded with interest, and equity investors seek dividends. Finance theory offers various models for estimating a particular firm’s cost of equity like the CAPM (Capital Asset Pricing Model).

The beta factor is a criterion used by many investors in the process of making the decision as to whether to invest in a company or not. Beta can ascertain the level of different risk types of investment that might be encountered so that the investor can maximize his wealth. Beta is majorly used to measure the variation of stock value in the market due to the consistent market price fluctuation, and as a result, it is a requirement that beta is maintained at 1. When the beta is more than, the stock will be considered to be more volatile hence the price will not change along with that of the market.

Visa Inc
period 2005-2010 2010-2015
Daily 0.994 -0.85
Weekly 0.929 1.35
Monthly -1.2 0.66
American Express Company
Period 2005-2010 2010-2015
Daily 0.52 0.86
Weekly 0.54 0.83
Monthly 0.66 0.86

 

Dividend policy of a company relates to the company’s decision in regards to dividend distribution from the profit made. Companies may decide to distribute or retain their net profit based on several reasons. This policy affects the firm’s long-term financing decision of the company as well as its shareholder’s wealth maximization. Higher dividend payout results into the business not having enough funds to expand its operation.

In the general stock market, many players have different interest. Investors, therefore, are concerned with the amount of dividend that their investment will be able to generate. Because of this, they apply various ratios to analyses the stocks available in the market to help them in making the appropriate decision as to which stock to buy. For this reason, various ratios are used to analyze company dividend policies.

 

Visa Inc. Dividends
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)
2011 0.26 1.72 2011 1.32 51
2012 0.30 1.85 2012 1.26 57
2013 0.33 1.90 2013 1.16 63
2014 0.40 2.15 2014 0.71 86
2015 0.48 2.58 2015 0.62 124
           

 

American Express company Dividend
Years Dividend per share Diluted earnings per share Years Dividend yield Payout ratio
        DPS/MPS DPS/EPS (%)

 

 

2011 0.65 4.64 2011 0.76 16%
2012 0.76 4.96 2012 0.88 17%
2013 0.89 5.05 2013 0.98 18%
2014 1.01 5.39 2014 1.09 19%
2015 1.13 5.50 2015 1.62 21%

 

Financial statements used were as follows:

American express statement of comprehensive income

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31
Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Other Revenue, Total
Total Revenue 33,293.00 34,665.00 33,416.00 32,416.00 31,816.00
Cost of Revenue, Total 8,484.00 8,122.00 7,666.00 7,666.00 6,890.00
Gross Profit 24,809.00 26,543.00 25,750.00 25,550.00 25,450.00
Selling/General/Admin. Expenses, Total 13,034.00 14,613.00 14,619.00 14,619.00 14,530.00
Research & Development
Depreciation/Amortization
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 692.00 -261.00 278.00 278.00 278.00
Other Operating Expenses, Total 3,101.00 3,395.00 2,912.00 2,912.00 2,912.00
Total Operating Expense 25,355.00 25,674.00 25,528.00 25,439.00 25,420.00
Operating Income 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net
Income Before Tax 7,938.00 8,991.00 7,888.00 7,888.00 7,788.00
Income After Tax 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Minority Interest
Equity In Affiliates
Net Income Before Extra. Items 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 5,163.00 5,885.00 5,359.00 5,359.00 5,259.00
Preferred Dividends
Income Available to Common Excl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Income Available to Common Incl. Extra Items 5,063.00 5,839.00 5,312.00 5,312.00 5,275.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

     
Dilution Adjustment ﷐        0.00                     –                      –                      –                     –
Diluted Weighted Average Shares 1,003.00 1,051.00 1,089.00 1,108.00 1,298.00
Diluted EPS Excluding Extraordinary Items 5.05 5.56 4.88 4.98 5.05
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 1.13 1.01 0.89 0.68 0.54
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 5.50 5.39 5.05 4.98 4.75

 

American Express balance sheet

In Millions of USD (except for per share items) As of 2015-12-31 As of 2014-12-31 As of 2013-12-31 As of 2012-12-31 As of 2011-12-31
Cash & Equivalents                      –                  –                –
Short Term Investments                  –               –
Cash and Short Term Investments 2,935.00 2,628.00 2,212.00 2,089.00 1,845.00
Accounts Receivable – Trade, Net 58,663.00 44,386.00 43,777.00 43,234.00 43,008.00
Receivables – Other
Total Receivables, Net 61,687.00 47,000.00 47,185.00 47,185.00 46,988.00
Total Inventory
Prepaid Expenses 851.00 1,626.00 1,998.00 2,134.00 2,367.00
Other Current Assets, Total
Total Current Assets
Property/Plant/Equipment, Total – Gross 10,909.00 10,208.00 9,853.00 9,687.00 9,245.00
Accumulated Depreciation, Total -6,801.00 -6,270.00 -5,978.00 -5,654.00 -5,387.00
Goodwill, Net 2,749.00 3,024.00 3,198.00 3,298.00 3,367.00
Intangibles, Net 796.00 854.00 817.00 797.00 778.00
Long Term Investments 23,586.00 24,091.00 22,290.00 22,386.00 22,109.00
Other Long-Term Assets, Total 2,708.00 2,494.00 2,929.00 2,856.00 2,734.00
Total Assets 161,184.00 159,103.00 153,375.00 150,375.00 147,375.00
Accounts Payable 11,822.00 11,300.00 10,615.00 9,615.00 9,515.00
Accrued Expenses
Notes Payable/Short-Term Debt 60,218.00 48,298.00 47,226.00 46,226.00 45,226.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total
Total Current Liabilities
Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Capital Lease Obligations
Total Long Term Debt 48,061.00 57,955.00 55,330.00 54,330.00 52,330.00
Total Debt 108,279.00 106,253.00 102,556.00 98,556.00 94,556.00
Deferred Income Tax
Minority Interest
Other Liabilities, Total 20,410.00 20,877.00 20,708.00 20,608.00 20,508.00
Total Liabilities 140,511.00 138,430.00 133,879.00 132,879.00 131,879.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total 194.00 205.00 213.00 213.00 215.00
Additional Paid-In Capital 13,348.00 12,874.00 12,202.00 12,102.00 11,702.00
Retained Earnings (Accumulated Deficit) 9,665.00 9,513.00 8,507.00 8,407.00 8,207.00
Treasury Stock – Common
Other Equity, Total -2,592.00 -2,015.00 -1,489.00 -1,356.00 -1,234.00
Total Equity 20,673.00 20,673.00 19,496.00 19,296.00 19,096.00
Total Liabilities & Shareholders’ Equity 161,184.00 159,103.00 153,375.00 151,375.00 147,375.00

 

Shares Outs – Common Stock Primary Issue  

 

 

 

 

Total Common Shares Outstanding        969.00      1023.00    1064.00     1089.00   1123.00

 

American Express Cash flow

In Millions of USD (except for per share items) 12 months ending 2015-12-31 12 months ending 2014-12-31 12 months ending 2013-12-31 12 months ending 2012-12-31 12 months ending 2011-12-31          
Net Income/Starting Line 5,163.00 5,885.00 5,359.00 5,059.00 4,859.00          
Depreciation/Depletion 1,043.00 1,012.00 1,020.00 1,027.00 1,017.00          
Amortization          
Deferred Taxes 506.00 -941.00 -283.00 -281.00 -273.00          
Non-Cash Items 2,222.00 2,334.00 2,460.00 2,360.00 2,220.00          
Changes in Working Capital 2,038.00 2,700.00 -9.00 -9.00 -8.00          
Cash from Operating Activities 10,972.00 10,990.00 8,547.00 7,547.00 6,547.00          
Capital Expenditures -1,341.00 -1,195.00 -1,006.00 -985.00 -945.00          
Other Investing Cash Flow Items, Total -6,852.00 -6,772.00 -6,263.00 -6,063.00 -5,963.00          
Cash from Investing Activities -8,193.00 -7,967.00 -7,269.00 -7,069.00 -6,969.00          
Financing Cash Flow Items 10,878.00 2,459.00 1,195.00 1,095.00 995.00          
Total Cash Dividends Paid -1,172.00 -1,041.00 -939.00 -919.00 -879.00          
Issuance (Retirement) of Stock, Net -3,446.00 -3,285.00 -3,222.00 -3,122.00 -3,022.00          
Issuance (Retirement) of Debt, Net -8,289.00 1,878.00 -925.00 -905.00 -895.00          
Cash from Financing Activities -2,029.00 11.00 -3,891.00 -3,791.00 -3,691.00          
Foreign Exchange Effects -276.00 -232.00 -151.00 -141.00 -139.00          
Net Change in Cash 474.00 2,802.00 -2,764.00 -2,664.00 -2,564.00          
Cash Interest Paid, Supplemental 1,600.00 1,700.00 2,000.00 2,000.00 1,900.00          
Cash Taxes Paid, Supplemental 3,400.00 2,500.00 2,000.00 1,900.00 1,700.00          

 

Visa Inc. income statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30
Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Other Revenue, Total
Total Revenue 13,880.00 12,702.00 11,778.00 10,778.00 9,778.00
Cost of Revenue, Total
Gross Profit
Selling/General/Admin. Expenses, Total 3,834.00 3,610.00 4,139.00 4,039.00 4,139.00
Research & Development
Depreciation/Amortization 494.00 435.00 397.00 387.00 377.00
Interest Expense(Income) – Net Operating
Unusual Expense (Income) 14.00 453.00 18.00 17.00 15.00
Other Operating Expenses, Total 474.00 507.00
Total Operating Expense 4,816.00 5,005.00 4,554.00 4,654.00 4,354.00
Operating Income 9,064.00 7,697.00 7,224.00 7,024.00 6924.00
Interest Income(Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Other, Net -69.00 27.00 -4.00 -4.00 -4.00
Income Before Tax 8,995.00 7,724.00 7,257.00 7,157.00 7,157.00
Income After Tax 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Minority Interest 0.00 0.00 0.00 0.00
Equity In Affiliates
Net Income Before Extra. Items 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Accounting Change
Discontinued Operations
Extraordinary Item
Net Income 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Preferred Dividends
Income Available to Common Excl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Income Available to Common Incl. Extra Items 6,313.00 5,421.00 4,961.00 4,861.00 4,761.00
Basic Weighted Average Shares
Basic EPS Excluding Extraordinary Items

 

Basic EPS Including Extraordinary Items  

 

 

 

 

Dilution Adjustment 15.00 17.00 19.00 21.00 23.00
Diluted Weighted Average Shares 2,457.00 2,524.00 2,624.00 2,687.00 2,753.00
Diluted EPS Excluding Extraordinary Items 2.58 2.15 1.90 1.80 1.65
Diluted EPS Including Extraordinary Items
Dividends per Share – Common Stock Primary Issue 0.48 0.40 0.33 0.28 0.21
Gross Dividends – Common Stock
Net Income after Stock-Based Comp. Expense
Basic EPS after Stock-Based Comp. Expense
Diluted EPS after Stock-Based Comp. Expense
Depreciation, Supplemental
Total Special Items
Normalized Income Before Taxes
Effect of Special Items on Income Taxes
Income Taxes Ex. Impact of Special Items
Normalized Income After Taxes
Normalized Income Avail to Common
Basic Normalized EPS
Diluted Normalized EPS 2.58 2.28 1.90 1.80 1.60

 

Balance sheet Visa Inc.

In Millions of USD (except for per share items) As of 2015-09-30 As of 2014-09-30 As of 2013-09-30 As of 2012-09-30 As of 2011-09-30
Cash & Equivalents 3,518.00 1,971.00 2,186.00 2,086.00 2,386.00
Short Term Investments 2,497.00 1,979.00 2,069.00 2,169.00 2,269.00
Cash and Short Term Investments 6,015.00 3,950.00 4,255.00 4,355.00 4,455.00
Accounts Receivable – Trade, Net 847.00 822.00 761.00 751.00 731.00
Receivables – Other
Total Receivables, Net 1,332.00 1,699.00 1,702.00 1,802.00 1,902.00
Total Inventory
Prepaid Expenses 137.00 103.00 111.00 121.00 131.00
Other Current Assets, Total 2,537.00 3,810.00 1,754.00 1,854.00 1,954.00
Total Current Assets 10,021.00 9,562.00 7,822.00 7,622.00 7,422.00
Property/Plant/Equipment, Total – Gross 4,283.00 3,915.00 3,439.00 3,039.00 2,939.00
Accumulated Depreciation, Total -2,395.00 -2,023.00 -1,707.00 -1,607.00 -1,507.00
Goodwill, Net 11,825.00 11,753.00 11,681.00 11,581.00 11,481.00
Intangibles, Net 11,361.00 11,411.00 11,351.00 11,251.00 11,451.00
Long Term Investments 3,429.00 3,050.00 2,790.00 2,690.00 2,490.00
Other Long Term Assets, Total 216.00 304.00 327.00 337.00 347.00
  39,367.00 38,569.00 35,956.00 33,956.00 30,956.00
Accounts Payable 127.00 147.00 184.00 195.00 204.00
Accrued Expenses 2,121.00 2,303.00 936.00 956.00 976.00
Notes Payable/Short-Term Debt 0.00 0.00 0.00 0.00 0.00
Current Port. of LT Debt/Capital Leases
Other Current Liabilities, Total 3,107.00 3,556.00 3,215.00 3,315.00 3,015.00
Total Current Liabilities 5,355.00 6,006.00 4,335.00 4,535.00 4,735.00
Long Term Debt 0.00
Capital Lease Obligations
Total Long Term Debt 0.00 0.00 0.00 0.00 0.00
Total Debt 0.00 0.00 0.00 0.00 0.00
Deferred Income Tax 3,273.00 4,145.00 4,149.00 4,049.00 4,078.00
Minority Interest
Other Liabilities, Total 897.00 1,005.00 602.00 672.00 656.00
Total Liabilities 9,525.00 11,156.00 9,086.00 8,986.00 8786.00
Redeemable Preferred Stock, Total
Preferred Stock – Non-Redeemable, Net
Common Stock, Total
Additional Paid-In Capital 18,073.00 18,299.00 18,875.00 19,875.00 19,975.00
Retained Earnings (Accumulated Deficit) 11,843.00 9,131.00 7,974.00 6,874.00 6,574.00
Treasury Stock – Common

 

Other Equity, Total -162.00 -86.00 -61.00 -59.00 -52.00
Total Equity 29,842.00 27,413.00 26,870.00 25,870.00 24,870.00
Total Liabilities & Shareholders’ Equity 39,367.00 38,569.00 35,956.00 34,956.00 33,956.00
Shares Outs – Common Stock Primary Issue
Total Common Shares Outstanding 2,433.83 2,471.83 2,543.83 2,643.83 2,743.83

 

Visa Inc. Cash flow statement

In Millions of USD (except for per share items) 12 months ending 2015-09-30 12 months ending 2014-09-30 12 months ending 2013-09-30 12 months ending 2012-09-30 12 months ending 2011-09-30
Net Income/Starting Line 6,328.00 5,438.00 4,980.00 4,780.00 4,580.00
Depreciation/Depletion 494.00 435.00 397.00 367.00 337.00
Amortization
Deferred Taxes 195.00 -580.00 1,527.00 157.00 143.00
Non-Cash Items 3,112.00 3,164.00 2,479.00 2,379.00 2,179.00
Changes in Working Capital -3,545.00 -1,252.00 -6,361.00 -6,261.00 -6,161.00
Cash from Operating Activities 6,584.00 7,205.00 3,022.00 2,922.00 2722.00
Capital Expenditures -414.00 -553.00 -471.00 -461.00 -441.00
Other Investing Cash Flow Items, Total -1,021.00 -388.00 -693.00 -673.00 -643.00
Cash from Investing Activities -1,435.00 -941.00 -1,164.00 -1,064.00 -964.00
Financing Cash Flow Items 402.00 -1,445.00 4,381.00 4,281.00 4,181.00
Total Cash Dividends Paid -1,177.00 -1,006.00 -864.00 -764.00 -664.00
Issuance (Retirement) of Stock, Net -2,828.00 -4,027.00 -5,257.00 -5,457.00 -5,757.00
Issuance (Retirement) of Debt, Net 0.00 0.00 -6.00 -6.00 -6.00
Cash from Financing Activities -3,603.00 -6,478.00 -1,746.00 -1,846.00 -1,946.00
Foreign Exchange Effects 1.00 -1.00 0.00 0.00 0.00
Net Change in Cash 1,547.00 -215.00 112.00 162.00 182.00
Cash Interest Paid, Supplemental 81.00 62.00 46.00 36.00 26.00
Cash Taxes Paid, Supplemental 2,486.00 2,656.00 595.00 605.00 625.00

 

In the process of carrying out this research, there were difficulties we faced. One of them was that it was cumbersome computing the various financial ratios as they were so many and also time-consuming. Lack of teamwork among the group members was also an issue as we sometimes disagreed on the views we had and who is to be assigned a particular duty.

There are several limitations associated with ratio analysis. First, ratio analysis is useless without comparisons. In carrying out industry analysis, most companies use benchmark companies. These benchmark companies are those that are considered most accurate and also most important and are used to compare industry average ratios. Some companies even benchmark different divisions of their businesses against the same group of other benchmark companies.

Ratio analysis uses average rates instead of ratios of high performing firms in the industry. Average ratios do not depict the real picture of the performance of the individual companies, and in the case where firms are underperforming, it might be concluded that all businesses are doing poor yet particular firms have better performance. This, therefore, makes ratio analysis rather inaccurate in the determination of the performance of firms.

Ratio analysis is also highly affected by inflation particularly balance sheets of various firms. Balance sheets are deemed only to show historical data which majorly is the financial position of the firm at a particular point in time. In the case of inflation, the data gathered may be distorted without being noticed by the firm. Inflation majorly affects the inventory values, depreciation and profit values. When a comparison is made on the balance sheet information in two different time periods and inflation has occurred, then there might be distortion in the financial ratios.

The other limitation of ratio analysis is that it gives just numbers and not causation factors. It is always possible to calculate all the financial ratios one can imagine of, but the only problem is that we never seek to find the cause of the numbers. As a result, these ratios are rendered meaningless. Ratios are only meaningful when there is a basis for comparison against trend data.

The other limitation of ratio analysis is that different companies use different accounting practices leading to variations in the values of ratios calculated. The various methods used by corporations to value their inventory lead to inaccurate data when such companies are compared regarding their performance. Also, companies that use different depreciation methods when compared would affect the financial statements and hence invalid comparisons (Garrison, R. H, 2003, pp. 37).

 

 

 

 

 

 

 

 

 

 

References

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2003). Managerial accounting. New York: McGraw-Hill/Irwin.

 

 

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