Cash flow form operations has grown rapidly over the past five years — up nearly 300%. Free cash flow adjusted for acquisitions has grown much faster, up slightly over 300% during the five-year period, mainly because of margin improvements as the company refines itself.
Cash and equivalents are surging at Intuitive. Indeed, cash is forecast to more than double at the company over the next three years, while cash flows continue to improve.
| Metric | 2011 | 2012 |
|---|---|---|
| Cash as a percentage of total equity | 39% | 37% |
Unlike MasterCard, the majority of Intuitive Surgical, Inc. (NASDAQ:ISRG)’s assets are not cash. On average, cash makes up about 38% of Intuitive’s shareholder equity. Considering the company has no debt, this gives the company a cash-per-share value of $33. At a current share price of $514 and projected 2013 EPS of $20.60, this gives a forward P/E ratio adjusted for cash of 23.
Intuitive Surgical, Inc. (NASDAQ:ISRG) doesn’t currently pay a dividend, but with the company’s cash balance rising so rapidly, there is plenty of scope for cash return to shareholders in the future.
MasterCard’s nemesis
Obviously, MasterCard’s main rival is Visa. Visa Inc (NYSE:V) carries out many more transactions than MasterCard, but at a lower average dollar volume per transaction, which gives Visa a much lower cash conversion ratio. In addition, Visa carries out a lot of domestic transactions that don’t qualify for the highly lucrative international transaction fees that MasterCard charges.
| Metric | 2010 | 2011 | 2012 |
|---|---|---|---|
| Cash flow from operations | $558 | $2,691 | $3,872 |
| Free cash flow adjusted for acquisitions | $252 | $2,544 | $3,519 |
| Cash conversion ratio | 45% | 95% | 91% |
Figures in millions.
Visa’s highly cash generative nature means that the company has been able acquire competitors without any reliance on debt. Indeed, Visa Inc (NYSE:V) has no debt but more than $11 billion in goodwill on its balance sheet and a further $11 billion in other intangible assets.
Unfortunately, this amount of goodwill and other intangible assets does mean that Visa has a smaller part of its total shareholder equity directly in cash.
| Metric | 2011 | 2012 |
|---|---|---|
| Cash as a percentage of total equity | 24% | 26% |
On average, over the past five years cash has been about 30% of Visa’s total shareholder equity. After the deduction of goodwill and other intangibles from the balance sheet, cash accounts for between 90% and 100% of shareholder equity, on average, over the past five years.
In addition, Visa Inc (NYSE:V)’s cash balance is forecast to almost double between 2013 and 2014.
Overall
Visa, MasterCard and Intuitive are all highly cash generative companies with no balance sheet debt and a rapidly rising cash balance. All three have plenty of cash to continue operations even if revenues are hit by falling demand.
Finally, with such a strong cash balance, all three companies offer lots of potential for future cash return to shareholders, either through special dividends, regular dividends, or share-buyback programs.
The article 3 Companies Generating Lots of Cash originally appeared on Fool.com and is written by Rupert Hargreaves.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends Apple, Intuitive Surgical, and Visa and owns shares of Apple, Intuitive Surgical, and MasterCard.
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