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Visa is the most famous global payments method. Visa's technology connects "consumers, banks, businesses and governments in more than 200 countries and territories, enabling them to use digital currency instead of cash and checks." The company own Visa, Visa Electron, PLUS and Interlink, which license clients to use its payment programs. Visa offers a wide range of branded payment product platforms, which their clients, primarily financial institutions, use to develop and offer credit, debit, prepaid and cash access programs for their customers (individuals, businesses and government entities).

Visa operate an open-loop payments network, a multi-party system in which Visa connects financial institutions-issuing financial institutions that issue cards to cardholders, and acquiring financial institutions that have the banking relationship with merchants-and manage the exchange of information and value between them. The company does not issue cards to their customers but scores or sets rate and fees of services for consumers. Visa's revenues are primarily from fees paid by cardholders' payments volume, transactions that Visa processes and other related services that the company provides. Based on consumer's credit rate, Visa offers Visa Classic, Visa Gold, Visa Platinum, Visa Signature, Visa Signature Preferred and Visa Infinite.

Consumer spending and overall economic conditions are key factors affecting the performance and operations of the Visa Inc. Consumer spending has been fairly low in the past two years because of the global financial crisis that led to cancelation of vacations and review of expenditure with most expenditure being cut downwards by consumers. This has led to low payment volume growth with much improvement expected due to the regulatory measures put in place and the upward trend of the global economic recovery. Nominal payment volume and number of processed transactions impact on the volume of revenues realized this has also been in an upward trend a show of a continued shift by consumers to electronic mode of payments globally.

Some of the risk factors affect Visa's financial conditions that lead to operating losses. Especially security is most important for credit card companies like Visa. Risk management service that including Visa Advanced Authorization, include preventive, monitoring, investigative and predictive tools, which are intended to mitigate and help eliminate fraud at the cardholder and merchant level. Also, with Cyber Source technology, Visa make it easier for ecommerce merchants to accept, process and reconcile payments, manage fraud, and safeguard payment security online.

PART II

Then company under review is Visa Inc which operates in the security exchange industry. Visa is the global market leader in this security exchange industry with the other major being Marta card and American Express. The major growth driver in Visa is its strong brand that is continuing to grow by the issuance of trademark and technology intellectual property licenses and the increased demand in the electronic mode of payments. The main future concern to the management is the negative global economic condition which adversely affects the purchasing power of consumers, whether the demand in electronic mode of payment is sustainable in the future. Another concern to the management is the risk factors globally that include fraud and technological system complications where transactions cannot be noticed in time leading to erroneous billing. This concern is serious because it impacts directly on the customers and can easily lead to reduction of customer confidence in the brand.

Management issues predicting statements, which are basically limited to the date they are issued, not an assurance of the future performance and are subjects to assumptions that cannot be used for future financial analysis. The reason why American Express and MasterCard offer a fair comparison to Visa Inc in this industry is that in as much as Visa has the Highest profitability, Master Card showed the highest return on assets over the two companies while American Express came closely behind Visa with regards to return on invested capital.

PART III

Comparison of Financial Accounting Policies between Visa Inc. and Its Peers

The financial accounting and standards Board (FASB) in February 2007 agreed on Statement of Financial Accounting Standards (SFAS) no. 159 to be used by Visa as the accounting policy. SFAS no 159 allows financial instruments and other certain assets and liabilities to be measured at fair value on an instrument -by- instrument basis. IN MasterCard however, Financial Accounting Standards Board (FASB) implemented accounting standard Qualification and hierarchy of Generally Accepted Accounting Principle (GAAP) as the sole source of authoritative accounting principle on July 1, 2009. The new principle was not intended to change existing authoritative guidance (MasterCard Annual Report 2009). American Express also uses the GAAP for its financial reporting that reflects card member loans included in the company's consolidated balance sheet. There is no major difference in the accounting reporting principles among these organizations..

PART IV

In the first quarter after the end of the fiscal year, Visa filed form 10-Q which provided financial analysis with regards to general financial information, financial statements, management discussions and analysis of financial condition, results of operation and controls and procedures among other information required by law. The general financial information provided in the fiscal year ended march 2010 recorded improve operating revenues earned in the United States, rest of the world and with a drop from Visa Europe. There was a 21% and 17% increase in the U.S operating revenues and the rest of the world respectively. However there was a decline in revenue from Visa Europe by 3% as compared to 2009. This was because revenues from visa Europe are as a result of contractual arrangement as governed by the framework agreement for trademark and technology licenses and bilateral services. This explains that the revenues f4rom Visa Europe is from trademark and not core business. 

Service revenue also improves by 9% due to growth in nominal payments volume but however lower that the growth in the nominal payment volume as a result of the difference in the dollar value owed to the difference in geographical payment points globally and the global economic recovery rate which regulates the dollar competitive value and growth opportunities. Data processing revenues also increased by 25% from 2009 to 2010 due to the competitive different pricing actions across all the geographical pay points, as a result of the increase in the number of transactions processed globally. This revenue growth points to a sustainable and consistent future growth of the company. The upward trend indicates the general adoption of electronic payments globally, a positive business opportunity to the company.

Other revenues increased basically due to licenses fees from VisaNet do Brasil for the use of Visa trademark and technology intellectual property. The purpose of the form is to provide summarized financial information on the affaires of the company. The actual importance of the form is to provide an update on the operations of the company, improve investor confidence and bring on board potential investors.  It equally helps the management get a clear picture of the company in terms of performance whether on an upward or downward trend and projection of future growth; these are necessary pieces of information in decision making whether to make managerial, technological, human capital or brand changes or to maintain the status quo.

The information on Visa trademark and technology intellectual property revenues from VisaNet do Brasil provided in form 10 - Q, was particularly important in planning, predicting and projecting the growth of Visa as a company and a brand. It clearly shows that more organizations in various regions of the world have embraced Visa a mode of payments. The growth in data processing revenue, service and operating revenue globally, shows that the Visa brand is indeed growing and establishing its position as the global market leader and that the world is moving towards electronic payment methods as the preferred mode of payment. This in itself is an indication of Visa's undeterred future growth.

PART V

Evaluation of Visa's Quality of Earnings

Quality earnings were noted in several items contained in Visa's financial statement for the period ended March 2010, among them was the Gross Margin / sales ratio with a score of 5 owed to a controlled and minimized operating expenses against maximized sales revenues of $ 837 billion and $ 1.959 trillion respectively. This shows that Visa as a company has working internal control systems (ICS) that has helped them effectively manage their expenditure. Earnings variability rated at 4 because there were varied revenue streams ranging from intellectual property licenses, data processing revenues, service revenues and operational revenues. This variability provides spread of revenue avenues that ensures profitability even when certain segments record a downward trend in business.

Employee stock option expense was rated at 4 in 2009.Visa offered an Equity Incentive Compensation Plan to its staff in February 2009. The company granted 3,233 options, 3169 Restricted Stock Awards (RSAs) and 371 Restricted Stock Units at a fair value of $22.42 the when the actual market value at the NYSE was $53.85. Equally, in November 2008, the company issued 1,281,891 non qualified stock options out of which, 1,231,227 RSAs and 272,022 RSU to its employees under the 2007 Equity incentive Compensations Plan (EIP) at a fair value of $23.53 instead of the actual value of $56.47. This makes the Visa employees own the company thus builds their own dividends leading to increased employee productivity, Tax rate percentage rated at 5, a quality earning as a result of improved overall performance in profitability.

The growth of profit in March 2010 was higher than that of the same period the previous year. This is a clear show of growth in overall revenue of the company. Share buy back/ issuance rated at 4 is quality earning for Visa. In October 2009 the board of director authorized $ 1.0 billion share repurchase plan that would run up to March31 2010. This is done to create stoke reserve that can at any time of need be sold to the market for purposes of expansion (SEC's EDGAR Web 2011). In a case like this, the company proves the liquidity strength and disaster and risk preparedness for any future eventuality.

Accounting changes was rated as  a quality earning at 4, due to the restructuring by the Financial Accounting Standards Board (FASB) that issued Statement of Financial Accounting Standards (SFAS)  no. 159,  that allows the measurement of a number of financial instruments and certain other assets  and liabilities at fair value  on an instrument-by instrument basis under fair value option. Visa adopted SFAS 159 in October 2008 and this led to the fair valuation of the Mutual Fund Equity Security Investment(MFESI), relating to employee compensation plans which had earlier been reported as 'available -for- sale investment' (VISA INC.-10-Q). This new accounting methods impact positively on evaluation of results since it adds value to the asset base without depleting the cash flow by changing the investments that had earlier been unproductive and redundant.

PART VI

Trend analysis

Below is a comparison of the total assets of the companies under analysis:


2010

2009

2008

2007

Total Assets, Master Card

8,832.00

7,206.04

5,908.28

5,996.90

Total Assets, AXP

143,645.00

121,109.00

122,604.00

147,419.00

Total Assets, Visa Steel

33,408.00

32,281.00

34,981.00

25,150.00

Master Card Trend in %

22.56

21.97

-1.48


AXP Trend in %

18.61

-1.22

-16.83


Visa  Trend in %

3.49

-7.72

39.09


The largest of the three companies in terms of total assets or resources is American Express with $143 billion followed by Visa with $33 billion and the smallest is Master Card with $8 billion as of the year ended 2010.

Trend analysis

In terms of growth rate annually Master showed the largest rate in 2010 over 2009 at 22%, whereas Visa showed the lowest 3.49% growth rate for the same years. American Express is in the middle at a modest 18%. As shown below Master showed the highest growth from 2007 to 2010 at more than 82% compared to American Express of only 12% over the same period. Visa Card had a 32.83% growth for the same period.

MA growth from 2006 to 2010, %

82

AXP growth from 2006 to 2010, %

12

V growth from 2007 to 2010, %

32.83

Shown below are comparative financial ratios of the three companies:


Amex

Master

Visa

Quick Ratio

0.98

1.86

2.03

Current Ratio

0.98

2.05

2.5

Cash And Eqt Pct Current Assets

85.46

72.68

67.75

Receivables Pct Current Assets

14.54

17.77

13.66

Accounts Receivable Days

85.46

70.56

58.63

Profitability Analysis

The comparative table as shown above on profitability shows that the Visa showed the highest profitability efficiency among the three companies. First, it has the highest net margin rate of 36.78% compared to the largest company American Express of only a 13% net margin rate in same year 2010. Master Card showed the highest return on assets over the two companies, which was almost 5 times better. Likewise, the return on invested capital was the highest at 42% compared to Amex and Visa which showed 6.58% and 12.47%, respectively. The capacity to generate cash on operations also showed Visa as the highest generator with 62.32% of sales, whereas Amex and MasterCard showed only 28% and 38.54%, respectively. The reason for such a tremendously high performance of Visa, when compared to Amex and Visa is its high operating profit margin which at 56.34% is far above Amex of 20.14% and MasterCard at 50.14%.Asset Utilization Analysis

Asset Utilization Analysis

The high asset turnover ratio of Master Card is mainly due is also the highest among the three companies. This means that it is able to generate more revenues for every dollar of its total resources. Visa which has the highest total assets turned out to be much better in its performance than American Express. Asset turnover of Visa was .24 compared to .21 of American Express.

In the companies' use of cash on capital assets Master Card was the highest at 85% of total assets and American Express next highest. While this is the case, Master Card used only 1% of its sales for asset expansion, whereas Visa used up 26% of its sales generated cash. This strategy of Master Card is the result of a high profit margin which was retained by the company. The equity of Master Card was 99% of total asset. As shown in the leverage ratios Master Card has a dividend payout of only 4.29% per share from its annual earnings yearly. Master Card is the highest performer among the three companies on its percentage of working capital to total capital with 63% performance in 2010 compared to Visa, the larger in total assets, of 20.91% percent of capital. The latter may default in the payment of its short term liabilities when these become due.

Leverage Analysis

In terms of solvency performance for the year 2010 American Express showed the worst solvency position, followed by Visa and Master Card shows the best debt to equity position. This is shown in the Leverage Ratios table.  American Express had total debt of more than 400%, Visa had 0.18% to common. Master Card on the other hand showed an almost nil percentage of debt to common equity. It is almost same between Visa and MasterCard. This makes Master Card and Visa well entrenched on its long term solvency, whereas Amex is actually trading on the equity with a high debt to equity ratio.

This picture is duplicated in the short term solvency of the three companies. Why is this so? In the table above showing the number of day's receivable Visa had only 58 days uncollected compare to Master card and Amex, with low solvency position of its receivable staying uncollected for 85 days for Amex and 70 days of MasterCard. Visa shows best position in liquidity. Quick ratio is most liquidity assets which is 2.03 compare to 0.98 and 1.86 of American Express and MasterCard. This ratio determines a firm's ability to pay off current liabilities without relying on the sale of inventories. Again in terms of current ratio performance Visa had a 2.50:1 ratio whereas the MasterCard had a 2.05 to 1 and had less than $1 of current assets to every $1 of current liability of American Express. Gross margin and Cost of goods sold analysis of Visa.

Gross margin and Cost of goods sold analysis of Visa

Shown below are the relevant financial ratios of Visa Steel in the analysis of its cost of sales and inventory performance:


2010

2007

Asset Turnover

0.24

0.21

Cost of Goods Sold To Sales

15.15

22.32

Gross Profit Margin

81.56

73.29

The gross profit margin of Visa appears to be much better in 2010 compared to 2007 at the rate of 81.56 and 73.29, respectively. This is due to the lower percentage of cost of sales to revenues which decreased from 22.32 in 2007 down to only 15.15 in 2010. This improvement may not necessarily mean better performance in its cost of goods procured. It is likely that this decrease is due to a higher rate of increase in its revenues from 2007 to 2010. The reason for such conclusion is the fact that the asset turnover rate of its inventory increased from 0.21 times in 2007 to 0.24 times in 2010. It means company's profit is increased. This is confirmed by the number of accounts receivable days was held shorter in 2010 than in 2009 at 58.63 days and 78.59 days, respectively. We can conclude from this observation, also, that the company management of its assets is better in 2010 than it was in 2007.

PART VI


Comparative Ratios


Amex

Master Card

Visa Steel

PROFITABILITY RATIOS

12/31/10

12/31/10

03/31/10

Return On Assets

4.20

23.40

9.17

Return On Invested Capital

6.58

42.90

12.47

Cash Flow To Sales

28.45

38.54

62.32

Cost of Goods Sold To Sales

N/A

#N/A

15.15

Gross Profit Margin

N/A

#N/A

81.56

Operating Profit Margin

20.14

50.14

56.34

Pretax Margin

19.72

49.75

57.59

Net Margin

13.25

33.26

36.78

 




ASSET UTILIZATION RATIOS

12/31/10

12/31/10

03/31/10

0




Assets Turnover

0.21

0.63

0.24





Capital Expend Pct Total Assets

0.73

0.85

0.75

Capital Expend Pct Sales

2.93

1.10

2.99

0

0.00



LEVERAGE RATIOS

12/31/10

12/31/10

03/31/10

0

0.00



Total Debt Pct Common Equity

474.34

0.00

0.18

LT Debt Pct Common Equity

321.34

0.00

0.13

LT Debt Pct Total Capital

76.27

0.00

0.13

Equity Pct Total Capital

23.73

99.79

99.86

Total Debt Pct Total Assets

53.59

0.00

0.13

Common Equity Pct Total Assets

11.30

58.93

74.87

Total Capital Pct Total Assets

47.61

59.06

74.97

Dividend Payout

21.64

4.29

12.41

Cash Dividend Coverage Ratio

9.92

27.04

13.66

Working Cap Pct Total Capital


63.48

20.91

0

0.00



LIQUIDITY RATIOS

12/31/10

12/31/10

03/31/10

0




Quick Ratio

0.98

1.86

2.03

Current Ratio

0.98

2.05

2.50

Cash And Eqt Pct Current Assets

85.46

72.68

67.75

Receivables Pct Current Assets

14.54

17.77

13.66

Accounts Receivable Days

85.46

70.56

58.63

Inventories Days Held

N/A

#N/A

N/A

Master Card is the most profitable company for investment due to its highest performance from among the three companies. Its revenues are growing and its use of its resources is outstanding compared to the other two companies. But, during this economic condition, Visa is the best company for investment due to its financial stability and performed highest ability in liquidation. It also has the best growth potential through acquisition and intellectual trademark licensing of its brand to other relatively smaller industry players around the world.

With the global upward trend in usage and acceptance of electronic modes of payments for goods and services, Visa presents a wonderful opportunity for new investors and assures the existing share holders of stable growth in their investments. It equally provides business growth opportunities to financial institutions and merchants who can embrace the Visa brand to increase their sales turnovers.

Visa has today embarked on an anti fraud education program and   works closely with government and law enforcement agencies, to help educate consumers on how to Recognize, Report and Stop fraud in an effort to curb this vice. Together  with governments, law enforcement and industry partners, Visa has dedicated the month of March to fraud prevention, this period is used to deliver fraud awareness messages to users through a variety of channels. These efforts include developing educational material on how consumers can protect themselves against the latest fraudulent ways in the market. The fraud prevention education helps Visa in not only protecting its business but also help card holders avoid loss of hard earned funds. During this period of fraud awareness campaign, Visa also takes the advantage to market its brand and this has contributed to the soaring recognition all over the world.

Looking at the performance of American Express, it is clear that market presence in the United States alone cannot grow business. Visa and MasterCard have over the years focused and spent huge resources in exporting their brands beyond the American border and this has been a major contributor to the stronger financial performance today.

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