Financial Analysis of American Express and Visa

This article provides a detailed financial analysis of American Express and Visa, including revenue and income trends, financial ratio analysis, and ethical concerns. The article also offers a recommendation for investment based on the analysis.

Running head: FINANCE
Finance
Name of the student
Name of the university
Author note

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Table of Contents
Company background................................................................................................................2
Industry outlook.........................................................................................................................2
Analyst’s forecasts.....................................................................................................................2
Revenue and income trend.........................................................................................................3
Financial ratio analysis...............................................................................................................3
Altman’s Z score........................................................................................................................4
Ethical concerns.........................................................................................................................5
Ratio analysis and recommendation...........................................................................................5
Reference....................................................................................................................................6

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Company background
American Express Company that is incorporated on 10th June 1965 provides global
services along with its subsidiaries. Principal Service and products of the company are
charges, travel related services and products related to credit cards (Americanexpress.com,
2018). On the other hand, history of Visa began in the year 1958 when the Bank of America
started Bank America program in Fresno, Calif. Though the company originally planned for
providing the service in state basis only, over the time period various banks licenses their
card system from the Bank of America (Investor.visa.com, 2018).
Industry outlook
If the industry look of American Express and Visa is considered it can be stated that
US card processing industry is expected to see the shakeup among the 4 incumbents as Amex
is seemed to be poised to push ahead of the MasterCard for becoming 2nd largest credit card
processor (Americanexpress.com, 2018). On the other hand, Visa remained undisputed leader
in the market with the market share of 53% in quarter 1 of 2018.
Analyst’s forecasts
As per the analysts and management of Amex it is forecasted that it will hit high
range of full year earnings for $ 6.90 to $ 7.30. If $ 7.20 is used as base point it will give
Amex the forward P/E ratio of 13.7. Further, it is expected that the company will pay $ 0.35
as quarterly dividend that will lead to dividend yield of 1.42% and the payout ratio of 19.4%
only. On the other hand, based on the last 12 month’s EPS of $ 3.95 Visa is valued with P/E
ratio of 32 at present. Considering the quarterly dividend of $ 0.21 it will lead to dividend
yield of 0.65% only (Investor.visa.com, 2018).

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Revenue and income trend
Amex –
2013 2014 2015 2016 2017
Revenues $ 27,927.00 $ 28,820.00 $ 26,896.00 $ 26,348.00 $ 27,030.00
Net Income $ 5,359.00 $ 5,885.00 $ 5,136.00 $ 5,408.00 $ 2,736.00
Visa –
2013 2014 2015 2016 2017
Revenues $ 11,778.00 $ 12,702.00 $ 13,380.00 $ 15,082.00 $ 18,358.00
Net Income $ 4,980.00 $ 5,438.00 $ 6,328.00 $ 5,991.00 $ 6,699.00
From the above table it can be identified that for Amex it has not any specific trend
revenue growth as well as net income. Both revenue and income increased in 2014 as
compared to 2013. However, revenue follow the reducing trend till 2016 and in again
increased in 2017. In case of net income it fell in 2015, increased in 2016 again and
significantly fell in 2017 (Ic et al., 2015). On the other hand, revenues for Visa had increasing
trend throughout the last 5 years. In case of net income it was in increasing trend till 2017
except for the year 2016.
Financial ratio analysis
Amex –
Ratio 2013 2014 2015 2016 2017
Net profit ratio 19.19 20.42 19.10 20.53 10.12
Return on assets 3.49 3.70 3.19 3.40 1.51
Current ratio 1.11 1.12 0.94 1.04 1.07
Debt to equity ratio 6.87 6.70 6.80 6.75 8.94
Interest coverage ratio 16.84 20.09 15.28 14.91 11.56

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Net profit
ratio
Return on
assets
Current
ratio
Debt to
equity ratio
Interest
coverage
ratio
0
5
10
15
20
25
Amex
2013
2014
2015
2016
2017
Visa –
Ratio 2013 2014 2015 2016 2017
Net profit ratio 42.28 42.81 47.29 39.72 36.49
Return on assets 15.12 14.10 15.73 9.36 9.85
Current ratio 1.80 1.57 2.53 2.31 2.25
Debt to equity ratio 0.34 0.41 0.35 0.95 1.08
Interest coverage ratio NA NA NA 29.33 27.34
Net profit
ratio
Return on
assets
Current ratio Debt to
equity ratio
Interest
coverage
ratio
0
5
10
15
20
25
30
35
40
45
50
Visa
2013
2014
2015
2016
2017
Altman’s Z score
Z-Score = ([Working Capital / Total Assets] x 1.2) + ([Retained Earnings / Total Assets] x
1.4) + ([Operating Earnings / Total Assets] x 3.3) + ([Market Capitalization / Total
Liabilities] x 0.6) + ([Sales / Total Assets] x 1.0)

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Z score of Amex and Visa –
2015 2016 2017
Amex 0.50 0.54 0.67
Visa 11.09 4.27 4.98
Ethical concerns
Generally the Z score of lower than 3 indicates that the company’s risk is increasing
and it is heading to bankruptcy. To improve it the company shall improve its working capital
position through paying off the short term obligations (Frederick, 2014). Further, it shall
improve its retained earnings to meet future obligations. It is found that for all the 3 years
Amex’s Z score is significantly low, however, Visa’s Z score is indicating that it is
financially viable.
Ratio analysis and recommendation
If all the profitability, solvency and liquid ratio is compared it can be found that in all
aspects Visa’s position is better as compared to Amex. Hence, if one company is to be
selected for investment Visa will be better as compared to Amex.

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Reference
Americanexpress.com. (2018). American Express India | Log in | Credit Cards, Travel &
Rewards. [online] Retrieved 20 November 2018, from
https://www.americanexpress.com/in/
Frederick, N.K., (2014) January. Factors affecting performance of commercial banks in
Uganda: A case for domestic commercial banks. In Proceedings of 25th International
Business Research Conference (pp. 1-19).
Ic, Y.T., Tekin, M., Pamukoglu, F.Z. and Yildirim, S.E., (2015). Development of a financial
performance benchmarking model for corporate firms. Journal of the Faculty of
Engineering and Architecture of Gazi University, 30(1), pp.71-85.
Investor.visa.com. (2018). Visa Inc. - Annual Report & Meeting . [online] Retrieved 20
November 2018, from https://investor.visa.com/annual-report-meeting/