MasterCard Created Value for Shareholders

MasterCard Incorporated (NYSE:MA) outperformed the Data Processing and Outsourced Services industry over the past 12 months. 

This is based on the its ROE.  MasterCard produced a higher 74.05% ROE relative to the peer average of 14.62%.

Return on Equity (ROE) is a measure of MA’s profit relative to its shareholders’ equity.  Most noteworthy, an ROE of 74.05% implies $0.74 returned on every $1 invested. 

A higher ROE is preferred in most cases.  However, there are several other factors we should consider before drawing any conclusions.

Return on Equity = Net Profit ÷ Shareholders Equity

Returns are usually compared to costs to measure the efficiency of capital.  MA’s cost of equity is 9.73%. Given a positive discrepancy of 64.32% between return and cost, this indicates that MA pays less for its capital than what it generates in return.  Therefore, this is a sign of capital efficiency.

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