An analysis of the cash flow statement of Visa Inc

Publié le 23 janvier 2012 par tryingtobelikewarren

Hi,

I will do an analysis of Visa Inc's consolidated statements of cash flows as it gives us a good overview of what the company is doing with it's cash ( where does it come from and how it is spend).

There are three main themes in cash flow statements :

1/ Operating activities which represents the cash incoming and outgoing rom the business itself (thus the word operating);

For the last three years from 2009 to 2011, it has been an upward trend: there has been a 3 314 million dollars increase between 2009 and 2011 which represents a 593,9 % increase!

Two major points explain this very good result:

an increase in the net income (3 645 million dollars in 2011 against 2 352 million dollars in 2009 representing a 55 % increase). In other words, Visa Inc is doing a very good job.
And a extremely important reduction in the accrued litigation item ( -290 million dollars in 2011 against -2 201 million dollars in 2009) representing a 86,8% drop. Unfavorable results in different litigation cases have thus been estimated to be less likely to happen. The litigation environment is much better. It is clearly indicated that in 2011 there was "an absence of a 662 million dollar prepayment of our Retailer's litigation obligation in the prior year".

2/ Investing activities which shows us what the company is doing with it's cash with an investment perspective (equipement, acquisitions...).

In 2011 and 2010 the result were negative (i.e investments were made). The combined buying of the two companies (Fundamo and PlaySpan: 325 million dollars for the total purchase consideration of the two companies) in 2011 were much less important than the 2010 buying of CyberSource (1 952 million dollars purchase price).

In 2011, a very important purchase in investment securties took place (U.S Treasury Securities and U.S Government sponsored debt securities) for 1 910 million dollars. In other words, cash has been invested in a very secure/conservative financial product.

3/Financing activities (i.e what was done with the cash for matters which do not concern investment in the business).

We can see an increase from -2751 million dollars in 2009 to -3 304 million dollars in 2011.

This increasecan be explained by two elements:

the repurchase of class A common stocks (it's the repurchase program we discussed in a previous post ( Visa inc: analysis of the number of outstanding shares ) for 2 024 million dollars
and the deposits (for 1 200 million dollars) into the litigation escrow account -retrospective responsability plan which is also linked to the repurchase program.

There has been a decrease in the cash available at the end of the year (it has also been the case in 2009 and 2010) which doesn't worry me as it is explained by the repurchase program (for 2010 and 2011, for 2009 there was 1 800 million dollar deposit inot the litigation escrow account and a payment for redemption of stock).

But let's not forget that 1 910 million dollars have been invested in U.S Treasury Securities as well as in U.S Government sponsored debt securities.

To sum up, cash has been well spent (repurchase program), well invested (U.S Treasury Securities and the like) and there was still 2 127 million dollars in available cash in september 2011!

Hope that you liked the post! Don't hesitate to share your comments!

Cheers