This paper we review the analysis of fundamentals for the company Square and their competitor Pay Pal. Using the most recent U.S. Securities and Exchange Commission 10-K reports. This paper will then review the current financial reports and provide an overall revenue outlook.

Analysis of the Fundamentals

BUSINESS OVERALL and Operating Characteristics

     In February 2009 the company Square started to allow people that had a mobile device the ability to take card payments no matter where they were. Square is currently generating approximately 95% of their revenue from payments and point of sales services. They have extended their product to now include financial services and market services to aide sellers to start, run, and grow a business (SEC Square, 2016).

     Squares competitor is Pay Pal. PayPal allows business or consumers that have an email the ability to send and receive on line payments securely. Square is producing a product that meet the needs for businesses especially the new and smaller ones, merchants that are online, and entities that are currently not getting their needs met by traditional payment mechanisms.

Product and Services

     Both companies are in the business of improving the way that a consumer can purchase merchandise and services. Square uses a device that attaches to a person’s mobile device while Pay Pal uses a person who has account with them that is linked to their email and then they enter the person who is to receive the amount of payment with their email address. The funding source is selected either credit card, bank account or PayPal balance. If a person who has not registered with PayPal the website that they are on has an included Web Accept, the customer can open a PayPal account from the merchant’s site in order to make a purchase.

Customers

     The customers for Square are varied and include businesses and anyone that needs or wants to be able to take payments with a payment card. The business or person will need to use the Square device. There is no limit to who may purchase the Square.

The customers for PayPal are just as varied and include business customers, personal, and online auctioning. The consumer needs to be registered with PayPal and the merchant will need to have a Web accept.

Goals and Strategies

The goals and strategy for Square are to continue to broaden their use within different merchants. Their recent collaboration with Starbucks has proven to be successful and the goals of the company are to collaborate with more merchants and offer them their services. The other goal for Square is to open up more buyable shares.

     The goals and strategy for PayPal are to continue to expand and branch out to even more merchants and customers. They are looking at expanding their services. They have recently separated from EBay so that both companies can focus on themselves.

Market Positions

     Square has launched a new six commercial ad campaign to promote their product and services. They have also been marketing in business magazines and via the web. While these tactics are common they are also relying on the word of mouth from their customers and from the merchants that are using them (Squareup.com, 2016).

PayPal jumped into taking an ad campaign to a new level and had an ad in 2016 on the Super bowl. While most of their campaigning is done via the web they also rely heavily on merchants that are already using their product and encourage consumers to join PayPal.

General Risk Factors

          For both companies their major risk factor is fraud. This takes the form of card evaluation, proprietor fraud detection software and experience. Square is newer to the market and has extensively placed security as their number one priority. For both companies if there was to be a security breach it would be detrimental to them as their business is based on trust of their products.

Quantitative and Qualitative Mark Risk Factors

     Both companies are in danger to the market risks connected to the variations in interest rates on their own fixed and variable rate debt. Presently both companies are not using interest rate swaps, forward or option contracts on foreign currencies or commodities or other types of derivative financial instruments.

Competitors

The competition in this market for Square and PayPal are Apple Pay, Google Wallet, Spark Pay and Inner Fence to name a few. The competition is becoming greater as each group are developing and bidding for the same market pool. What is keeping Square and PayPal as two of the front runners is their ability to keep their users and continue to innovate and expand their current products.

Competitive Technology

     In both Companies Square and PayPal they are constantly looking at bettering their current technology not only for the use of their products but for their security for merchants and consumers. Data security is priority for Square and also PayPal. Both companies protect their physical and inter net data. The actual functioning technology is also competitive as each company strives to be better, faster and easier to use than the other.

Regulatory Considerations

The United States regulates the bill paying customers, money transmitters, and check sellers, issuers of payment instruments or similar non-bank payment businesses in more than forty states.  The states endorsed the majority of these statutes before the Internet developed as a commercial setting, and the solicitation of these statutes to online payment service providers has not been understood by courts or governing authorities. Based on the explicit requirements of many of these state statutes, it is believed that money services regulations cover their businesses only in a few states. In other states, it is believed that the type of their services or fee structure eliminate them from the statutes’ licensing requirements and money services regulation (SEC Square, 2016).

Choice of Equity Valuation Model

     This author will be using the ratio analysis to show the equity of the company Square. There will also be a comparison with the company PayPal with the same ratio analysis. By using this method this paper will show the financial performance of the company’s and identifies the company’s financial health through conducts ratio analysis.

Ratio Analysis

The company is Square. Financial ratios are used to remove essential data that may not be easily seen from inspecting a firm’s financial statements (Brigham, 2014).

Performance

Performance ratios like gross profit margin. The gross profit margin recognizes the gross profit per dollar of sales before any other expenses are deducted (Brigham, 2014).

The gross profit margin for Square is 14% (nasdaq, 2016). The average is 6.2

Activity:

Activity ratios are used to measure the competency that a company is using its assets. This shows the overall operational performance (Lan, 2012).With the activity ratios the rate that the company is turning over their assets or liabilities is measured.   The receivable turnover ratio is determined by dividing net revenue by average receivable. For Square the Net receivable turnover ratio is 7.82 (nasdaq, 2016).

Financing:

The level that a firm uses debt financing is called financial leverage. Using a debt to assets ratio a person is able to tell the sum of all short term debt and long term debt (Brigham, 2014). Debt to assets ratio is calculated by total debt divided by total assets. For Square their debt to asset ratio is .44 (nasdaq, 2016).  The industry average is .25.

Liquid:

Liquid ratio are the most used ratios. This is important to creditors because the ratio measures a company’s capability to meet its short-term responsibilities (Lan, 2012). Quick ratio is more severe than the current ratio. Quick ratio equates the cash, short-term marketable securities and accounts receivable to current liabilities. Square current ratio is 2.11 (nasdaq, 2016) the industry average is 2.2.

Based on these ratios Square is doing well but is still new to the market as it shows with their current ratio. They have shown to continue to improve with their numbers for the past 2 years.

The competitor PayPal:

Performance

PayPal Holdings Incorporated gross profit for the end of December 2015 was $2,556 million PayPal revenue for the three months ended in December. 2015 was $2,556 million. Consequently, PayPal Gross Margin for the quarter that ended in December 2015 was 100%. Throughout the past four years, the highest gross margin of PayPal was 100%. The lowest was 100%, and the median was 100.00%.

Activity

           According to the most recent balance sheet, PayPal has not logged any inventories. Within Services sector PayPal accomplished highest inventory turnover ratio. Though inventory turnover ratio continued to be unchanged compare to previous quarter (CSIMarket, 2016).

Financing

       Due to repayments of liabilities of -0.66% PayPal Holdings improved Leverage Ratio in fourth quarter 2015 to 0.21, a company low for the first time. Within Professional Services business in the fourth quarter 2015, nine additional companies have attained lower leverage ratio thanPayPal Holdings. Though leverage ratio total ranking has gotten better so far to 284, from total ranking in previous quarter at 541 (CSIMarket, 2016).

Liquidity

                           PayPal’s present ratio that ended in December 2015 was 1.52. During the past four years, their highest current ratio was 1.52. The lowest was 1.30. The median was 1.32 (nasdaq, 2016).

Based on the information PayPal needs to pay down their debt in order to improve their current ratio.

References

Brigham, E. E. (2014). Financial Management: Theory and Practice 14th ed. Mason, OH: South-Western.

CSIMARKET . (2016, April 12). Retrieved from 2016 from http://csimarket.com/stocks/singleEfficiencyit.php?code=PYPLPayPal Holdings Inventory Turnover Ratios (COS): 2016 from http://csimarket.com/stocks/singleEfficiencyit.php?code=PYPL

Lan, J. (2012). 16 Financial Ratios for Analyzing a Company’s Strength and Weakness. AAII Journal.

nasdaq. (2016, April). Retrieved from http://www.nasdaq.com/symbol/sq/financials?query=ratios: http://www.nasdaq.com/symbol/sq/financials?query=ratios

PayPal competitors. (2016, April). Retrieved from http://www.bloomberg.com/news/videos/2015-07-20/who-are-paypal-s-competitors-.

SEC Square. (2016, April). Retrieved from https://www.sec.gov/Archives/edgar/data/1512673/000119312515343733/d937622ds1.htm#toc.

Squareup.com. (2016, April). Retrieved from https://squareup.com.

     This paper will review the financial analysis as it pertains to the company Square Inc. and PayPal. This paper will review the Management’s Discussion and Analysis for both companies along with a pro-forma financial statements that cover a five year span. The strategies that are being used by both companies and a look at the ratio analysis of the pro-forma financial statements.

Review of Management’s Discussion and Review

The management discussion and analysis or review is the section of a company’s annual report that shows that management has discussed the numerous aspects of the company’s past and present (Brigham, 2014). In the two companies that this paper will look at the MDA will be explained.

     The company Square and the company PayPal have been discussed in the previous paper Financial Analysis and Proposal Component 1. In this each company has had their overall business and operating characteristics, product service, customers, goals and strategies, market position, and general risk factors all that are discussed in the MDA.

     The company Square recorded a net revenue that surpassed their prior year by 850.2 million that was up 54% from the year prior (SEC Square, 2016). They intend to continue this growth and to make investments that will benefit both sellers and buyers in long term. The company did report a net loss in December 31, 2015 of 179.8 million.

     The company PayPal had an operating expense in 2015 that was a 1 billion dollar increase over the prior year. Revenues increased 1.2 billion or a 15% increase in 2015, this was mostly due to an increase in transaction expense, customer support and operations expense. The generated cash flow for the year 2015 was 1.8 billion (CSIMARKET , 2016).

Pro Forma Financial Statements

     A Pro Forma financial statement shows how an actual statement would look if certain assumptions are realized (Brigham, 2014). For the Pro Forma five year statement of the company Square and PayPal please see attachment A.

Current Strategies to Achieve Higher ROI

     The goals and strategy for Square are to continue to broaden their use within different merchants. Their recent collaboration with Starbucks has proven to be successful and the goals of the company are to collaborate with more merchants and offer them their services. The other goal for Square is to open up more buyable shares.

     The goals and strategy for PayPal are to continue to expand and branch out to even more merchants and customers. They are looking at expanding their services. They have recently separated from EBay so that both companies can focus on themselves.

Ratio Analysis

     Ratio analysis is the measureable analysis of financial information from a company’s financial statements. These ratios are key to helping provide input to evaluate and compare companies to each other (Brigham, 2014).

     For the ratio analysis of the company Square and PayPal please see attachment A.

References

Brigham, E. E. (2014). Financial Management: Theory and Practice 14th ed. Mason, OH: South-Western.

CSIMARKET . (2016, April 12). Retrieved from 2016 from http://csimarket.com/stocks/singleEfficiencyit.php?code=PYPLPayPal Holdings Inventory Turnover Ratios (COS): 2016 from http://csimarket.com/stocks/singleEfficiencyit.php?code=PYPL

SEC Square. (2016, April). Retrieved from https://www.sec.gov/Archives/edgar/data/1512673/000119312515343733/d937622ds1.htm#toc.

ATTACHMENT A:

Pay Pal

Fiscal year	2013	2014	2015	2016	2017	2018	2019	2020
Assets
Cash and cash equivalents	1,604	2,201	1,393	1,665	1,998	2,357	2,781	3,199
Receivables	12,428	14,957	16,582	20,177	24,213	28,571	33,714	38,771
Investments	196	31	2,348	2,348	2,348	2,348	2,348	2,348
Property and equipment	858	922	1,344	1,585	1,902	2,245	2,649	3,046
Goodwill	3,187	3,189	4,069	4,069	4,069	4,069	4,069	4,069
Other intangible assets	258	156	358	444	533	629	742	853
Other assets	629	461	2,787	1,110	1,332	1,571	1,854	2,132
Total assets	19,160	21,917	28,881	31,398	36,394	41,790	48,157	54,419
Liabilities and stockholders’ equity
Liabilities
Short-term borrowing	1,103	1,093	–	–	–	–	–	–
Payables and accrued expenses	10,158	12,190	13,617	14,427	17,312	20,167	23,642	27,011
Taxes payable	37	29	32	55
Deferred taxes			1,505	1,505	1,505	1,505	1,505	1,505
Other liabilities	472	357	(32)	444	533	629	742	853
Total liabilities	11,770	13,669	15,122	16,431	19,350	22,300	25,889	29,369
Stockholders’ equity (balancing figure)	7,390	8,248	13,759	14,967	17,044	19,490	22,269	25,050
Total liabilities and stockholders’ equity	19,160	21,917	28,881	31,398	36,394	41,790	48,157	54,419
Cash and cash equivalents (% of Sales)	23.8%	27.4%	15.1%	15%	15%	15%	15%	15%
Receivables turnover	0.54	0.54	0.56	0.55	0.55	0.55	0.55	0.55
Investments (remain constant)
Property and equipment (asset turnover)	7.84	8.70	6.88	7.00	7.00	7.00	7.00	7.00
Goodwill (remain constant)
Other intangible assets (% of sales)	3.8%	1.9%	3.9%	4.0%	4.0%	4.0%	4.0%	4.0%
Other assets (% of sales)	9.4%	5.7%	30.1%	10.0%	10.0%	10.0%	10.0%	10.0%
Short-term borrowing (remains constant)
Payables turnover	0.43	0.43	0.46	0.60	0.60	0.60	0.60	0.60
Taxes payable (% of sales)	0.6%	0.4%	0.3%	0.5%	0.5%	0.5%	0.5%	0.5%
Deferred taxes (remains constant)
Other liabilities (% of sales)	7.0%	4.4%	-0.3%	4%	4%	4%	4%	4%
It is assumed that the gap in balance sheet will be meet by equity financing and company will raise fresh equity either through follow-up offer or through strategic sale

Fiscal Year	2012	2013	2014	2015	2016	2017	2018	2019	2020
Revenue	5,662	6,727	8,025	9,248	11,098	13,317	15,714	18,543	21,324
% Growth		18.8%	19.3%	15.2%	20%	20%	18%	18%	15%
Technology and occupancy	677	727	890	947	1,221	1,465	1,886	2,596	3,412
% of Sales	12.0%	10.8%	11.1%	10.2%	11%	11%	12%	14%	16%
Advertising and promotion	662	791	998	985	1,332	1,598	1,571	1,854	2,132
% of Sales	11.7%	11.8%	12.4%	10.7%	12%	12%	10%	10%	10%
Nonrecurring expense	19			48	–	–	–	–	–
% of Sales	0.3%	0.0%	0.0%	0.5%	0%	0%	0%	0%	0%
Other expenses	3042	3665	4353	5199	6,104	7,324	8,643	9,735	10,662
% of Sales	53.7%	54.5%	54.2%	56.2%	55%	55%	55%	53%	50%
Total operating expenses	4,400	5,183	6,241	7,179	8,656	10,387	12,100	14,185	16,206
% of Sales	77.7%	77.0%	77.8%	77.6%	78.0%	78.0%	77.0%	76.5%	76.0%
EBIDTA	1,262	1,544	1,784	2,069	2,441	2,930	3,614	4,358	5,118
% of Sales	22.3%	23.0%	22.2%	22.4%	22.0%	22.0%	23.0%	23.5%	24.0%
Depreciation and amortization	382	453	516	608	721	866	1,021	1,205	1,386
% of Sales	6.7%	6.7%	6.4%	6.6%	6.5%	6.5%	6.5%	6.5%	6.5%
Operating income	880	1091	1268	1461	2,441	2,930	3,614	4,358	5,118
% of Sales	15.5%	16.2%	15.8%	15.8%	22.0%	22.0%	23.0%	23.5%	24.0%
Total nonoperating income, net	11	-7	-7	27	–	–	–	–	–
% of Sales	0.2%	-0.1%	-0.1%	0.3%	0%	0%	0%	0%	0%
Income before taxes	891	1084	1261	1488	2,441	2,930	3,614	4,358	5,118
% of Sales	15.7%	16.1%	15.7%	16.1%	22.0%	22.0%	23.0%	23.5%	24.0%
Provision for income taxes	113	129	842	260	488	586	723	872	1,024
% of PBT	12.7%	11.9%	66.8%	17.5%	20%	20%	20%	20%	20%
Net income	778	955	419	1228	1,953	2,344	2,891	3,486	4,094
% of Sales	13.7%	14.2%	5.2%	13.3%	17.6%	17.6%	18.4%	18.8%	19.2%
Diluted EPS			0.31	1.00	1.59	1.91	2.35	2.84	3.33
Diluted outstanding shares			1,262	1,229	1,229	1,229	1,229	1,229	1,229

SQUARE

Fiscal Year	2012	2013	2014	2015	2016	2017	2018	2019	2020
Revenue	203	552	850	1267	1,901	2,851	3,849	5,003	6,254
% Growth		171.9%	54.0%	49.1%	50%	50%	35%	30%	25%
Cost of Revenue	139	424	624	897	1,283	1,853	2,502	3,002	3,440
% of Sales	68.5%	76.8%	73.4%	70.8%	68%	65%	65%	60%	55%
Gross Profit	64	128	226	370	618	998	1347	2001	2814
% of Sales	31.5%	23.2%	26.6%	29.2%	32.5%	35.0%	35.0%	40.0%	45.0%
Research and development	47	74	145	145	209	314	423	550	688
% of Sales	23.2%	13.4%	17.1%	11.4%	11%	11%	11%	11%	11%
Sales, General and administrative	100	149	213	371	523	784	962	1,251	1,563
% of Sales	49.3%	27.0%	25.1%	29.3%	28%	28%	25%	25%	25%
Other expenses		2	1	2	2	3	4	5	6
% of Sales	0.0%	0.4%	0.1%	0.2%	0.1%	0.1%	0.1%	0.1%	0.1%
Total operating expenses	147	225	359	518	734	1,100	1,389	1,806	2,258
% of Sales	72.4%	40.8%	42.2%	40.9%	38.6%	38.6%	36.1%	36.1%	36.1%
EBIDTA	(83)	(97)	(133)	(148)	(116)	(103)	(42)	195	557
% of Sales	-40.9%	-17.6%	-15.6%	-11.7%	-6.1%	-3.6%	-1.1%	3.9%	8.9%
Depreciation and amortization	3	8	18	27	38	57	77	100	125
% of Sales	1.5%	1.4%	2.1%	2.1%	2.0%	2.0%	2.0%	2.0%	2.0%
Operating income	(86)	(105)	(151)	(175)	(154)	(160)	(119)	95	432
% of Sales	-42.4%	-19.0%	-17.8%	-13.8%	-8.1%	-5.6%	-3.1%	1.9%	6.9%
Other income (expense)	0	1	-2	-2	–	–	–	–	–
% of Sales	0.0%	0.2%	-0.2%	-0.2%	0%	0%	0%	0%	0%
Income before taxes	(86)	(104)	(153)	(177)	(154)	(160)	(119)	95	432
% of Sales	-42.4%	-18.8%	-18.0%	-14.0%	-8.1%	-5.6%	-3.1%	1.9%	6.9%
Provision for income taxes		1	1	4	–	–	–	–	–
% of PBT	0.0%	-1.0%	-0.7%	-2.3%	0%	0%	0%	0%	0%
Net income	(86)	(105)	(154)	(181)	(154)	(160)	(119)	95	432
% of Sales	-42.4%	-19.0%	-18.1%	-14.3%	-8.1%	-5.6%	-3.1%	1.9%	6.9%
Preferred dividend				32	32	32	32	32	32
Net income available to common shareholders	(86)	(105)	(154)	(213)	(186)	(192)	(151)	63	400

Fiscal year	2013	2014	2015	2016	2017	2018	2019	2020
Assets
Cash and cash equivalents	166	225	471	665	713	770	750	938
Receivables	2	2	5	11	16	21	28	35
Inventories	1	3	12	38	57	77	100	125
Prepaid expenses	3	5	7	11	14	12	5	6
Other current assets	81	175	211	475	713	962	1,251	1,563
Net property, plant and equipment	52	64	87	127	168	192	200	250
Goodwill	1	40	57	57	57	57	57	57
Intangible assets	1	10	27	27	27	27	27	27
Other assets	12	17	18	38	57	77	100	125
Total assets	319	541	895	1,449	1,821	2,195	2,518	3,127
Liabilities and stockholders’ equity
Liabilities
Payables and accrued expenses	33	39	70	134	197	259	321	380
Deferred revenues	–	–	33	33	33	33	33	33
Other liabilities	97	152	257	475	713	962	1,251	1,563
Long-term debt	–	30	–	–	–	–	–	–
Other long-term liabilities	27	46	27	48	71	96	125	156
Total liabilities	157	267	387	690	1,014	1,351	1,729	2,133
Stockholders’ equity (balancing figure)	162	274	508	759	807	844	789	994
Total liabilities and stockholders’ equity	319	541	895	1,449	1,821	2,195	2,518	3,127
Cash and cash equivalents (as % of sales)	81.8%	40.8%	55.4%	35%	25%	20%	15%	15%
Receivables turnover	102	276	170	180	180	180	180	180
Inventories turnover	139	141	52	50	50	50	50	50
Prepaid expenses (as % of sales)	1.5%	0.9%	0.8%	0.60%	0.50%	0.30%	0.10%	0.10%
Other current assets (as % of sales)	39.9%	31.7%	24.8%	25%	25%	25%	25%	25%
Asse turnover	3.90	8.63	9.77	15.00	17.00	20.00	25.00	25.00
Goodwill (Remain constant)
Intangible assets (remain constant)
Other assets (as % of sales)	5.9%	3.1%	2.1%	2.0%	2.0%	2.0%	2.0%	2.0%
Payable Turnover	8.67	16.64	14.04	15.00	15.00	15.00	15.00	15.00
Deferred revenues (Remain Constant)
Other liabilities (as % of Sales)	47.8%	27.5%	30.2%	25%	25%	25%	25%	25%
Long-term debt (remain constant)
Other long-term liabilities (as % of sales)	13.3%	8.3%	3.2%	3%	3%	3%	3%	3%
It is assumed that the gap in balance sheet will be meet by equity financing and company will raise fresh equity either through follow-up offer or through strategic sale

Ratios

Fiscal Year	2012	2013	2014	2015	2016	2017	2018	2019	2020
Revenue Growth – Paypal		18.8%	19.3%	15.2%	20.0%	20.0%	18.0%	18.0%	15.0%
Revenue Growth – Secure		171.9%	54.0%	49.1%	50.0%	50.0%	35.0%	30.0%	25.0%
3-Yr CAGR trend – Paypal				17.8%
3-Yr CAGR trend – Secure				84.1%
5-Yr CAGR Forecast – Paypal									18.2%
5-Yr CAGR Forecast – Secure									37.6%
Operating Profit Growth – Paypal		24.0%	16.2%	15.2%	17.7%	20.0%	25.6%	21.6%	18.4%
Operating Profit Growth – Secure		NA	NA	NA	NA	NA	NA	NA	NA
Net Profit Growth – Paypal		22.8%	-56.1%	193.1%	12.1%	20.0%	25.6%	21.6%	18.4%
Net Profit Growth – Secure		NA	NA	NA	NA	NA	NA	NA	NA
EBITDA margin – Paypal	22.3%	23.0%	22.2%	22.4%	22.0%	22.0%	23.0%	23.5%	24.0%
EBITDA margin – Secure	-40.9%	-17.6%	-15.6%	-11.7%	-6.1%	-3.6%	-1.1%	3.9%	8.9%
Operating Margin – Paypal	15.5%	16.2%	15.8%	15.8%	15.5%	15.5%	16.5%	17.0%	17.5%
Operating Margin – Secure	-42.4%	-19.0%	-17.8%	-13.8%	-8.1%	-5.6%	-3.1%	1.9%	6.9%
Net Margin – Paypal	13.7%	14.2%	5.2%	13.3%	12.4%	12.4%	13.2%	13.6%	14.0%
Net Margin – Secure	-42.4%	-19.0%	-18.1%	-16.8%	-9.8%	-6.7%	-3.9%	1.3%	6.4%
Receivable Turnover – Paypal		0.54	0.54	0.56	0.55	0.55	0.55	0.55	0.55
Receivable Turnover – Secure		101.50	276.00	170.00	180.00	180.00	180.00	180.00	180.00
Inventory Tunrover – Paypal	–	–	–	–	–	–	–	–	–
Inventory Tunrover – Secure		139.00	141.33	52.00	50.00	50.00	50.00	50.00	50.00
Payable Turnover – Paypal		0.43	0.43	0.46	0.60	0.60	0.60	0.60	0.60
Payable Turnover – Secure		8.67	16.64	14.04	15.00	15.00	15.00	15.00	15.00
Asset Turnover – Paypal		7.84	8.70	6.88	7.00	7.00	7.00	7.00	7.00
Asset Turnover – Secure		3.90	8.63	9.77	15.00	17.00	20.00	25.00	25.00
Return on Assets – Paypal		5.0%	1.9%	4.3%	4.4%	4.5%	5.0%	5.2%	5.5%
Return on Assets – Secure		-32.9%	-28.5%	-23.8%	-12.8%	-10.5%	-6.9%	2.5%	12.8%
Return on Investments – Paypal		12.8%	13.6%	10.6%	11.5%	12.2%	13.4%	14.2%	15.0%
Return on Investments – Secure		-64.8%	-49.7%	-34.4%	-20.3%	-19.8%	-14.1%	12.0%	43.4%
Return on Equity – Paypal		12.9%	5.1%	8.9%	9.2%	9.7%	10.7%	11.4%	12.0%
Return on Equity – Secure		-64.8%	-56.2%	-41.9%	-24.5%	-23.7%	-17.9%	8.0%	40.2%

This paper is to review the future financial health of PayPal Inc. and its competitor Square Inc.

The two companies PayPal and Square Inc. deal in the electronic money transfer where Pay pal users are required to have an email to be able to send and receive money online while the Square allow people that have mobile devices to be able to take card payments.

The analysis of the financial health of the two companies Pay pal and the Square Inc. following the external financing includes funding the operations of the business from outside sources such as debentures, debts and bonds issue.

External Financing Needs

The Square Inc. plans for public offering to obtain additional capital (SEC Square, 2016). This is to be done by creating the public market for Class A common stock and to facilitate its future access to the public equity markets. The company plans to finance its operations through equity, debt financing, or enter into the credit facilities for other reasons. The challenge stated here is that the company may not be able to obtain such additional funding of equity or debt because of the restrictive covenants relating to the company’s capital-raising activities and financial and operational matters. The selling is planned to made by the directed Start Small Foundation as the selling stockholder. J.P Morgan Securities LLC an underwriter in this offering and its affiliates collectively important profiting of more than 10% of the outstanding preferred stock that will be changed to share of class B common stock.

PayPal external financing needs are met by converting the preference stock to common stock upon the initial public offering, also the company trades its shares in the stock market to raise more finances (Sec.gov, 2016). According to the report the Pay pal company does not utilize debts because of the of high risks of interest’s debt rates.

 The business. Pay pal targets increase in the credit card processing which though its argued that it will increase its costs will increase its revenue in the long run.

Target Sources of Finance

Target sources of finance means the expected revenue to be to fund the operations of un. Square Inc. has its financial plan of offering new shares to the public increasing its debts sources, debentures and bonds issue to earn more revenue for acquiring its new investment and growth of the business. Square Inc. targets the substantially most of its revenue from the transactions fees collected from the payment services. It intends to broaden the scope of the of its products and services it offers to earn more significant revenue from the products. Over 90% of the targeted sources of finance is from the company’s provision of the services. In this company, 103,627,701 shares of class B common stock issuable upon the exercise of options to purchase shares of its common stock as of June 2017.Over 100,900 shares of Class B common stock issuable upon the exercise of restricted stock units in June 30 2017.     

Pay pal targets to source the income from the purchased securities [$26,292] and purchase of the fixed assets $ 9,995, income on the lease of $ 37.433, proceeds from exercise of the stock options $ 69,113 within the period of one year at June 30 2017.

Viability of 3-5-year plan

This refers to the established goals to be achieved in the company. It assists the company to pro-active in the opportunities and the challenges that may arise.

Square Inc. has this good plan which include the increase in the profits, by prioritizing the investments that will enhance the value of the group and maintaining internal reserves for expanding the business. Its plan is to use the funds remaining after the allocation of the dividends to invest in securities, assets and opening if the subsidiaries (SEC Square, 2016). The viability of this 3-5-year plan is at risk because the company is faced with the number of challenges such as the harsh downturn in the economy causing services in the entertainment field to collapse. Changes in the exchange rates of the US Dollar and the rapid changes in the consumer preferences. Changes in the political climate and the regulations affect the expanded subsidiaries in the foreign countries (Brigham, 2014). The goals of financing the investment by use of the reserves after the distribution is not consisted with the previous goals because the company usually has the policy of paying out dividends out of the retained earnings when the profits are low.

Pay Pal Company has also future plans that regards to the company operating and the financial plans. They include connecting the merchant consumers, protecting the money laundering, enhancing the privacy and the consumer protection. It plans to establish the global technology in the platform that links the merchants and the consumers around the globe. To enable this the corporation is planning to finance the activities through issuance of new shares, debentures and the debts. The company also have good plans in the financing of this good strategy through the retained earnings as the company has not paid dividends for the last three years hence the policy is consistent with the company goals.

CONCLUSION

In conclusion the two companies are competitors because they both deal in the electronic money transfer however differentiated therefore the very well successful. Belief that this report clearly indicates the detailed analysis of the company reports of S-1 for Square Inc. and 10-Q for PayPal covering the details of the external financing, target sources and the Viability of the two companies 3-5-year plan measuring the amount, timing, and consistency with the main reference to the two respective reports in addition to the references below.

References

Brigham, E. E. (2014). Financial Management: Theory and Practice 14th ed. Mason, OH: South-Western.

SEC Square. (2016, April). Retrieved from https://www.sec.gov/Archives/edgar/data/1512673/000119312515343733/d937622ds1.htm#toc.

Sec.gov. (2016, May). Retrieved from http://www.sec.gov/Archives/edgar/data/1103415/000091205702009834/a2073071z10-k405.htm: http://www.sec.gov/Archives/edgar/data/1103415/000091205702009834/a2073071z10-k405.htm

 

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