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Components of Company Revenue
Figure 1: Visa's Components of Net Revenue
https://viewer-lite.factset.com/140316121000060?dt=20211118&ti=18&rf=HT-CopyLink
Figure 2: Visa United States and International Revenues
https://viewer-lite.factset.com/140316121000060?dt=20211118&ti=17&rf=HT-CopyLink
Visa’s revenue can be broken down into multiple components. Their revenue for international and domestic are very similar. Both saw a 10 percent increase from 2020 to 2021 because of decreasing Covid restrictions and overall growth in number of transactions. They also saw increases due to the strength of the U.S Dollar compared to other denominations.
For more a specific revenue breakdown, service revenues and data processing revenues generated the most revenue. Service revenue has increased 14% because of growth in nominal payment volume. Data processing also saw an increase due to growth in processed transactions. All sectors saw a growth due to the prior year being the peak of the pandemic with many lockdowns. Also in 2021, there has been an increase in client incentives which have contributed to the increase in sales.
Vertical Analysis of Visa
Figure 3: Visa Vertical Analysis 2021& 2020
https://my.apps.factset.com/navigator/company-security/balance-sheet/V-US
The image above is Visa's vertical analysis for 2020 and 2021. Visa has been generating around 75% of their sales as gross income for the last five years. Their cost of goods sold hovers around 25% and their net income hovers around 50% as well. Visa is doing an excellent job with stability, growth, and generating income off their earnings. Attached below is the full vertical analysis of Visa since 2017.
post 4.xlsxVisa's Vertical Analysis Compared to JKHY
Looking at the comparison of Jack Henry to Visa through a vertical analysis, Visa does a better job generating profits. Jack Henry's cost of goods sold are 60% of sales in 2021 while Visa's are only 21%. JKHY's net income is only 18% compared to Visa's 50% in 2021. Although Visa's expense are a higher percentage of sales then Jack Henry, it is because their business is considerably bigger and has more expenses. Visa operates on a larger scale than JKHY, therefore their generating more income.
Revenue Recognition
According to Visa's 2021 10-K report Visa " recognizes revenue, net of sales and other similar taxes, as the payments network services are performed in an amount that reflects the consideration the Company expects to receive in exchange for those services." Fixed fees for payment network services are also recognized in the related service period. Lastly, any other fees including, issuer solutions, acceptance solutions, and advisory services during the period they were incurred.
Visa's competitors including PayPal, Jack Henry, and Western Union all recognize revenue as based on the consideration they expect to receive in exchange for transferring goods and services to the customer. Since all the companies in this sector are financial transaction processors, they are service based rather than transferring of goods. Therefore, revenues are recognized in the period that they are incurred.
Quality of Earnings
Visa's income statement shows strong quality of earnings. Evaluating 2017 to 2021, there are no big time sales that skew their income. All their revenues have grown as a stable rate, and therefore shown that they have a high quality of earnings.
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