Visa Inc. vs American Express
Visa Inc. is among the most popular American multinational corporations operating in the financial service sector. With its headquarters in California, US, it facilitates the transfer of money electronically throughout the entire world. The above happens through the world common Visa-branded debit and credit cards. However, Visa Inc. does not issue the cards or any direct services to consumers. Rather, it provides other financial institutions with Visa-branded payment packages that the institutions extend to their customers. The operations of Visa Inc. cut across various regions such as North America, Asia-Pacific, Middle East, Africa, Australia, Europe, and South America. However, Visa Europe is independent and uses a separate membership featuring an exclusive license of Visa Inc.’s technology and trademark to issue Visa Credit and Visa Debit cards in the European region. The stocks of Visa Inc. are traded on the New York Stock Exchange, and it is a member in both the Dow Jones and the S&P 500 indices (Reuters 1).
American Express Company, like Visa Inc., also operates in the financial services industry. As the name suggests, American Express, also called Amex, has its headquarters in New York City, United States. It is a multinational company that is best recognized for its popular charge cards, credit cards, as well as traveler’s cheque businesses. In the United States, American Express Company accounts for about one-quarter of the entire volume of dollars with respect to the credit card transactions happening in the United States. The company was founded in the year 1850. Currently, it is a member of the 30 companies whose stocks make up the Dow Jones Industrial Average index. It has been ranked in the top 30 most valuable brands in the world with an estimated worth of about fifteen billion dollars (Chanel 1). More so, it is listed among the top 20 most admired companies in the world with respect to quality and performance. Its stock trades on the New York Stocks Exchange as well.
Important Financial Ratios
Financial ratios are important business tools applied to the determination and assessment of the relative performance and strength of a company. To get various financial ratios, one has to make simple calculations using different items appearing in different financial statements – cash flow statements, income statements, and balance sheets. Ideally the financial ratios help in calculating the various aspects such as the liquidity, profitability, operational efficiency, as well as the stability of a given business entity. Financial ratios provide relevant information especially to investors, helping them to make the most optimal decisions regarding investing in a given company or not. Financial ratios are of different kinds. However, there are four categories of ratios depending on what information they provide: Profitability, Asset Utilization, Liquidity, and Debt Utilization.
As the name suggests, the profitability ratios help in determining the profitability of a business entity during particular trading periods, as well as over a span of a couple of trading days. One profitability ratio is the Return on Equity (ROE). ROE is a measure of the extent at which a business entity generates profits from the shareholder’s equity. It is calculated as:
ROE = Net Income / Shareholders Equity
From the Appendix, the ROE figures are as follows.
ROE for Visa Inc.: Year 2014 = 20.04
Year 2013 = 18.82
Year 2012 = 7.93
ROE for American Express: Year 2014 = 29.30
Year 2013 = 27.92
Year 2012 = 23.79
Asset utilization ratios also indicate the performance of a business entity. A good example of the above classification of ratios is the Return on Assets (ROA). ROA is a ratio of the net income per year divided by the average assets of a business entity in the same period.
ROA = Net Income (Annual) / Av. Total Assets
From the Appendix, the ROA figures are as follows.
ROA for Visa Inc.: Year 2014 = 14.59
Year 2013 = 13.11
Year 2012 = 5.73
ROA for American Express: Year 2014 = 3.77
Year 2013 = 3.50
Year 2012 = 2.92
Liquidity rations on the other hand give insight about a business entity’s ability to meet its financial obligations in the short-term period. One key liquidity ratio is the Current Ratio. The current ratio is a measure of current assets over current liabilities. That is:
Current Ratio = Current Assets / Current Liabilities
From the Appendix, below are the subsequent Current Ratio figures.
Current Ratio for Visa Inc.: Year 2014 = 1.59
Year 2013 = 1.80
Year 2012 = 1.48
Current Ratio for American Express: Year 2014 = 2.80
Year 2013 = 2.84
Year 2012 = 3.12
Finally, debt utilization ratios help in indicating the long-term performance of a company. One important ratio in this category is the Debt Ratio (Financial Leverage). It is a measure of the total debts over the total assets. That is:
Debt Ratio = Total Debts / Total Assets
The Debt Ratio (Financial Leverage) figures from the Appendix are as follows.
Debt Ratio for Visa Inc.: Year 2014 = 1.41
Year 2013 = 1.34
Year 2012 = 1.45
Debt Ratio for American Express: Year 2014 = 7.70
Year 2013 = 7.87
Year 2012 = 8.11
From the analysis of the financial data stipulated by the ratios above as well as other financial information in the Appendix, both Visa Inc. and American Express Company are performing fairly in the financial service industrial sector. With reference to the above, investing in either Visa Inc. or American Express Company would be a lucrative venture. However, although both companies exhibit positive growth, American Express Company stands out as the most aggressive of the two thus it would be the better choice of the two.
Tabulated Data (Trend Analysis)
|Return on Equity
|Return on Assets
American Express Company
|Return on Equity
|Return on Assets
Financial ratios are a good way to reflect on the growth of a company. Better yet, the analysis of the performance becomes easier to understand especially when the trend analysis technique is applied as in the above table. From the above table, it is easy to observe that the profitability of the both companies is on the rise. For the last three years, both Visa Inc. and American Express Company have had a positive growth in profitability as observed from the increasing Return on Equity in the above trend analysis.
Other than profitability, both companies exhibit a good degree of asset utilization. The ability to yield the best out of the property of a business is an aspect that increases business performance. In the span of the three years observed in the above trend analysis, the ROA increased by almost three times for Visa Inc. while that of American Express Company increased by over half. An increase in ROA means that both companies increased their asset utilization abilities.
The foreseeability principle is crucial in every business entity. For the above, determining the capacity to pay debts, in both the short-term and the long-term is very import. Fr the above, the Current Ratio, and the Debt Ratio help in stipulating the above. The above two ratios have been fluctuating about the same place in both companies. In both, the figures are positive meaning that the companies are in a position to pay both their short-term and their long-term debts. However, the numbers of American Express Company are a couple of times higher than those of Visa Inc. meaning that the creditors of American Company are more confident than those of Visa Inc.
Channel, Dividend. ‘American Express on the Forbes World’s Most Valuable Brands List’. Forbes. N.p., 2015. Web. 17 June 2015.
Morningstar. ‘Growth, Profitability, and Financial Ratios for Visa Inc.’. Financials.morningstar.com. N.p., 2015. Web. 17 June 2015.
Morningstar. ‘Growth, Profitability, And Financial Ratios For American Express Co.’.Financials.morningstar.com. N.p., 2015. Web. 17 June 2015.
Reuters. ‘Visa Inc (V) Company Profile | Reuters.Com’. Reuters.com. N.p., 2015. Web. 17 June 2015.