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1 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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[SEC16]. 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 2 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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. 3 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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[Squ16]. 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. 4 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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[SEC16]. 5 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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[Bri14]. 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[Bri14]. The gross profit margin for Square is 14%[nas16]. 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[Lan12].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[nas16]. 6 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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[Bri14]. Debt to assets ratio is calculated by total debt divided by total assets. For Square their debt to asset ratio is . 44[nas16]. 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[Lan12]. 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[nas16] 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 7 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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 than PayPal 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 [nas16]. Based on the information PayPal needs to pay down their debt in order to improve their current ratio. 8 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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.comews/videos/2015-0720/who-are-paypal-s-competitors-. SEC Square. (2016, April). Retrieved from https://www.sec.gov/Archives/edgar/data/1512673/000119312515343733/d937622ds1.htm#to c. 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 9 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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[Bri14]. 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[SEC16]. 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[CSI16]. Pro Forma Financial Statements 10 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL A Pro Forma financial statement shows how an actual statement would look if certain assumptions are realized[Bri14]. 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[Bri14]. For the ratio analysis of the company Square and PayPal please see attachment A. References 11 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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#to c. 12 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL ATTACHMENT A: Pay Pal Fiscal year Assets Cash and cash equivalents Receivables Investments Property and equipment Goodwill Other intangible assets Other assets Total assets Liabilities and stockholders' equity Liabilities Short-term borrowing Payables and accrued expenses Taxes payable 2013 2014 2015 2016 2017 1,604 2,201 1,393 1,665 1,998 12,428 14,957 16,582 20,177 24,213 196 31 2,348 2,348 2,348 858 922 1,344 1,585 1,902 3,187 3,189 4,069 4,069 4,069 258 156 358 444 533 629 461 2,787 1,110 1,332 19,160 21,917 28,881 31,398 36,394 1,103 1,093 - - - 10,158 12,190 13,617 14,427 17,312 37 29 32 55 1,505 1,505 1,505 Deferred taxes Other liabilities Total liabilities Stockholders' equity (balancing figure) Total liabilities and stockholders' equity Cash and cash equivalents (% of Sales) Receivables turnover Investments (remain constant) 472 357 (32) 444 533 11,770 13,669 15,122 16,431 19,350 7,390 8,248 13,759 14,967 17,044 19,160 23.8% 21,917 27.4% 28,881 15.1% 0.54 0.54 0.56 31,398 15% 0.55 36,394 15% 0.55 13 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL Property and equipment (asset turnover) Goodwill (remain constant) Other intangible assets (% of sales) Other assets (% of sales) 7.84 8.70 6.88 7.00 7.00 3.8% 9.4% 1.9% 5.7% 3.9% 30.1% 4.0% 10.0% 4.0% 10.0% Short-term borrowing (remains constant) Payables turnover 0.43 0.43 0.46 0.60 0.60 Taxes payable (% of sales) 0.6% 0.4% 0.3% 0.5% 0.5% Deferred taxes (remains constant) Other liabilities (% of sales) 7.0% 4.4% -0.3% 4% 4% It is assumed that the gap in balance sheet will be meet by equity financing and company will raise fresh equity either t Fiscal Year Revenue 2012 2013 2014 2015 2016 2017 201 5,662 6,727 18.8% 8,025 19.3% 9,248 15.2% 11,098 20% 13,317 20% 15, 18% % of Sales Advertising and promotion 677 12.0% 662 727 10.8% 791 890 11.1% 998 947 10.2% 985 1,221 11% 1,465 11% 1,8 12% % of Sales Nonrecurring expense 11.7% 19 11.8% 12.4% 10.7% 48 1,332 12% 1,598 12% 1,5 10% 0% 0% 0% % Growth Technology and occupancy % of Sales Other expenses 0.3% 3042 0.0% 3665 0.0% 4353 0.5% 5199 % of Sales Total operating expenses 53.7% 54.5% 54.2% 56.2% 6,104 55% 7,324 55% 8,6 55% 4,400 77.7% 5,183 77.0% 6,241 77.8% 7,179 77.6% 8,656 78.0% 10,387 78.0% 12, 77. % of Sales Depreciation and amortization 1,262 22.3% 382 1,544 23.0% 453 1,784 22.2% 516 2,069 22.4% 608 2,441 22.0% 2,930 22.0% 3,6 23. % of Sales Operating income 6.7% 880 6.7% 1091 6.4% 1268 6.6% 1461 721 6.5% 866 6.5% 1,0 6.5 2,441 2,930 3,6 % of Sales EBIDTA 14 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL % of Sales Total nonoperating income, net 15.5% 11 16.2% -7 15.8% -7 15.8% 27 % of Sales Income before taxes 0.2% 891 -0.1% 1084 -0.1% 1261 0.3% 1488 % of Sales Provision for income taxes 15.7% 16.1% 15.7% 16.1% 113 12.7% 778 129 11.9% 955 842 66.8% 419 260 17.5% 1228 13.7% 14.2% 5.2% % of PBT Net income % of Sales Diluted EPS Diluted outstanding shares 22.0% 22.0% 23. 0% 0% 0% 2,441 22.0% 2,930 22.0% 3,6 23. 488 20% 586 20% 723 20% 13.3% 1,953 17.6% 2,344 17.6% 2,8 18. 0.31 1.00 1.59 1.91 2.3 1,262 1,229 1,229 1,229 1,2 2014 850 2015 1267 2016 2017 20 2,851 50% 3,8 35 SQUARE Fiscal Year Revenue 2012 203 171.9% 54.0% 49.1% 1,901 50% 139 68.5% 64 31.5% 424 76.8% 128 23.2% 624 73.4% 226 26.6% 897 70.8% 370 29.2% 1,283 68% 618 32.5% 1,853 65% 998 35.0% 2,5 65 13 35 47 23.2% 100 74 13.4% 149 145 17.1% 213 145 11.4% 371 209 11% 314 11% 42 11 49.3% 27.0% 2 25.1% 1 29.3% 2 523 28% 784 28% 96 25 3 0.1% 4 0.1 1,100 1,3 % Growth Cost of Revenue % of Sales Gross Profit % of Sales Research and development % of Sales Sales, General and administrative % of Sales Other expenses % of Sales Total operating expenses 2013 552 0.0% 0.4% 0.1% 0.2% 2 0.1% 147 225 359 518 734 15 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL % of Sales EBIDTA % of Sales Depreciation and amortization % of Sales Operating income % of Sales Other income (expense) % of Sales Income before taxes % of Sales Provision for income taxes % of PBT Net income % of Sales Preferred dividend Net income available to common shareholders Fiscal year Assets Cash and cash equivalents 72.4% 40.8% 42.2% 40.9% 38.6% 38.6% 36 (83) -40.9% 3 (97) -17.6% 8 (133) -15.6% 18 (148) -11.7% 27 (116) -6.1% (103) -3.6% (42 -1. 38 2.0% 57 2.0% 77 2.0 (154) -8.1% (160) -5.6% (11 -3. 1.5% 1.4% 2.1% 2.1% (86) -42.4% 0 (105) -19.0% 1 (151) -17.8% -2 (175) -13.8% -2 0.0% 0.2% -0.2% -0.2% 0% 0% 0% (86) -42.4% (104) -18.8% (153) -18.0% (177) -14.0% (154) -8.1% (160) -5.6% (11 -3. 0.0% 1 -1.0% 1 -0.7% 4 -2.3% 0% 0% 0% (86) -42.4% (105) -19.0% (154) -18.1% (181) -14.3% (154) -8.1% (160) -5.6% (11 -3. 32 32 32 32 (213) (186) (192) (15 (86) (105) (154) 2013 2014 2015 2016 2017 166 225 471 665 713 2 2 5 11 16 1 3 12 38 57 3 5 7 11 14 81 175 211 475 713 52 64 87 127 168 1 40 57 57 57 Receivables Inventories Prepaid expenses Other current assets Net property, plant and equipment Goodwill 16 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL Intangible assets 1 10 27 27 27 12 17 18 38 57 319 541 895 1,449 1,821 33 39 70 134 197 - - 33 33 33 97 152 257 475 713 - 30 - - - 27 46 27 48 71 157 267 387 690 1,014 162 274 508 759 807 319 81.8% 541 40.8% 895 55.4% 1,449 35% 1,821 25% 102 276 170 180 180 139 1.5% 39.9% 141 0.9% 31.7% 52 0.8% 24.8% 50 0.60% 25% 50 0.50% 25% 3.90 8.63 9.77 15.00 17.00 5.9% 3.1% 2.1% 2.0% 2.0% 8.67 16.64 14.04 15.00 15.00 47.8% 27.5% 30.2% 25% 25% Other assets Total assets Liabilities and stockholders' equity Liabilities Payables and accrued expenses Deferred revenues Other liabilities Long-term debt Other long-term liabilities Total liabilities Stockholders' equity (balancing figure) Total liabilities and stockholders' equity Cash and cash equivalents (as % of sales) Receivables turnover Inventories turnover Prepaid expenses (as % of sales) Other current assets (as % of sales) Asse turnover Goodwill (Remain constant) Intangible assets (remain constant) Other assets (as % of sales) Payable Turnover Deferred revenues (Remain Constant) Other liabilities (as % of Sales) Long-term debt (remain constant) 17 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL Other long-term liabilities (as % of sales) 13.3% 8.3% 3.2% 3% 3% It is assumed that the gap in balance sheet will be meet by equity financing and company will raise fresh eq through strategic sale Ratios Fiscal Year Revenue Growth - Paypal Revenue Growth - Secure 3-Yr CAGR trend - Paypal 3-Yr CAGR trend - Secure 5-Yr CAGR Forecast Paypal 5-Yr CAGR Forecast Secure Operating Profit Growth Paypal Operating Profit Growth Secure Net Profit Growth - Paypal Net Profit Growth - Secure EBITDA margin - Paypal EBITDA margin - Secure Operating Margin - Paypal Operating Margin - Secure Net Margin - Paypal Net Margin - Secure Receivable Turnover - Paypal 2012 22.3% -40.9% 15.5% -42.4% 13.7% -42.4% 2013 2014 18.8% 19.3% 171.9% 54.0% 2015 15.2% 49.1% 17.8% 84.1% 2016 20.0% 50.0% 2017 20.0% 50.0% 2018 18.0% 35.0% 2019 18.0% 30.0% 24.0% 16.2% 15.2% 17.7% 20.0% 25.6% 21.6% NA NA NA NA NA NA NA 22.8% NA 23.0% -17.6% 16.2% -19.0% 14.2% -19.0% -56.1% NA 22.2% -15.6% 15.8% -17.8% 5.2% -18.1% 193.1% NA 22.4% -11.7% 15.8% -13.8% 13.3% -16.8% 12.1% NA 22.0% -6.1% 15.5% -8.1% 12.4% -9.8% 20.0% NA 22.0% -3.6% 15.5% -5.6% 12.4% -6.7% 25.6% NA 23.0% -1.1% 16.5% -3.1% 13.2% -3.9% 21.6% NA 23.5% 3.9% 17.0% 1.9% 13.6% 1.3% 0.54 0.54 0.56 0.55 0.55 0.55 0.55 101.50 276.00 170.00 180.00 180.00 180.00 180.00 - - - - - - - 139.00 141.33 52.00 50.00 50.00 50.00 50.00 0.43 0.43 0.46 0.60 0.60 0.60 0.60 8.67 16.64 14.04 15.00 15.00 15.00 15.00 Receivable Turnover - Secure Inventory Tunrover - Paypal Inventory Tunrover - Secure Payable Turnover - Paypal Payable Turnover - Secure 18 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL Asset Turnover - Paypal 7.84 8.70 6.88 7.00 7.00 7.00 7.00 3.90 5.0% -32.9% 12.8% 8.63 1.9% -28.5% 13.6% 9.77 4.3% -23.8% 10.6% 15.00 4.4% -12.8% 11.5% 17.00 4.5% -10.5% 12.2% 20.00 5.0% -6.9% 13.4% 25.00 5.2% 2.5% 14.2% -64.8% -49.7% -34.4% -20.3% -19.8% -14.1% 12.0% 12.9% -64.8% 5.1% -56.2% 8.9% -41.9% 9.2% -24.5% 9.7% -23.7% 10.7% -17.9% 11.4% 8.0% Asset Turnover - Secure Return on Assets - Paypal Return on Assets - Secure Return on Investments Paypal Return on Investments Secure Return on Equity - Paypal Return on Equity - Secure 19 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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[SEC16]. 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 20 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL more finances[UNI16]. 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. 21 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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[SEC16]. The viability of this 3-5year 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[Bri14]. 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 22 RUNNING HEAD: FINANCIAL ANALYSIS AND PROPOSAL 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#to c. Sec.gov. (2016, May). Retrieved from http://www.sec.gov/Archives/edgar/data/1103415/000091205702009834/a2073071z10k405.htm: http://www.sec.gov/Archives/edgar/data/1103415/000091205702009834/a2073071z10k405.htm