Free Cash Flow

Figure 1:Visa's Proforma Statement taken from excel

Figure 1 below is the first part of a free cash flow valuation. For my proforma, I used both FactSet and Valueline to find the industry average of sales for 2022 through 2025. The averages are seen in Figure 2. However, since the 2025 sales forecast was extremely low compared to the 2022-2024 numbers, I only included the 2022- 2024 years on the proforma. For years 2025 to 2032 I found their growth rates by using 5% as the long term growth rate. I used 5% because typically growth rates range from 1-5%. Seeing how high the growth rates were for 2022-2024, I felt that 5 was an appropriate estimation. Visa is also a growing company, in the Fintech industry which is growing exponentially, so they will continue to see growth from that as well. I also used a proforma for ten years rather than five, because Visa is still a growing company and will probably reach maturity in 10 years.

For cost of goods sold, I used the 2021 income statement number. To find percentage of COGS I divided COGS in 2021 by total revenue. Looking at FactSet and Valueline, I felt their estimates were too high to be consistent for 2022 through 2032, therefore I used the 3% taken from the income statement.

Similarly to cost of goods sold, I found SG&A for years 2022 through 2032 on the income statement. I averaged the 2017-2021 SG&A numbers and kept the 27.30 % consistent. I kept the number consistent because it barely ranged from 2017 to 2021 and Visa has not announced any new projects that would change this expense.

Lastly to calculate percentage change in NOA, I did a full free cash flow analysis. Figure 3 below shows the NOA as a percent of sales. I took the -23.59% from the 2017-2021 year average excluding outliers. The outlier was -38.30%. This was during 2021 and the Covid lockdown so they were investing in more operating assets to keep their company running. I did not include this in the average because its not an accurate representation of Visa's NOA.

The income statement below uses the growth rates calculated above. The 2022 year was found by using the 2021 numbers from the income statement and multiplying them by the growth rate for 2022. This was used for every object on the income statement. The 2023 through 2032 numbers followed the same format by multiplying the growth rate from the current year by the numbers generated in the prior year.

Figure 2:Visa's Sales Forecast using Factset and Valueline

Figure 3: Vertical Analysis of NOA as percentage of sales

Figure 3 below shows the second half of the free cash flow valuation. All of the numbers found is the model were taken from the proforma above.

The WACC was calculated on the cost of capital valuation found on the "Cost of Capital" page.

The enterprise value was found by taking the net present value of the WACC and the total free cash flow valuation from 2022-2031. The excess assets are the cash and cash equivalents found on the balance sheet for 2021. The value of debt was also found on the balance sheet and includes both current and long-term portions of debt for 2021.

The number of shares were taken from Valueline and were divided by the value of equity to conclude that the value per share is $163.94

Figure 4: Free Cash Flow Valuation Part 2

Excel Document: