International Finance: Recent Developments, MNE Key Elements, and Financial Performance of PayPal

This article explores recent developments in international finance and their impact on PayPal. It covers key elements of MNE and financial performance of PayPal using accounting reports for the years 2019 and 2018. The article also discusses PayPal's sources of finance, capital structure theory, dividend policy, and efficiency ratio. The subject is International Finance and the course code is not mentioned. The article is relevant for students studying finance, business, and economics in any college or university.

International Finance

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
Recent developments in international financial environment and impact on selected company...........3
Key elements of MNE..............................................................................................................................4
Financial performance.............................................................................................................................6
CONCLUSION.............................................................................................................................................13
REFERENCES..............................................................................................................................................15
APPENDIX..................................................................................................................................................17

INTRODUCTION
The study of organizations, practices and the assessment of bank lending that travel from
one jurisdiction to others are known as international finance. There are many notable differences
among international finance and its solely local equivalent, the most significant of which is
outflow of cash. Currency value risk is the probability that variations in the value of one national
currency per units of some other domestic currency introduce into any global financial
transaction. Additional variations also include climate for capital formation, additional risk
arising from political developments, and property and inheritance tax differentials (Di Pietro,
Marattin and Minetti, 2021). The study of the movements of currency values, foreign ownership,
and whether these influence world commerce is involved in international finance. To certain, the
term "international finance" may conjure up images of opulence and complication, yet its core
definition is anything but. Any cash institution that occurs across country boundaries is referred
to as international finance. The operation is classified as global banking whereas if confirmation
and receiving sites are located in 2 distinct nations.
The study would be based on PayPal Holdings, Inc., a digital financial company that has
innovated to function in the global market. The business is well throughout the board for its
worldwide internet banking procedures, which make money transfers easier online. PayPal is a
division of another technical company that provides solutions all over the globe.
MAIN BODY
Recent developments in international financial environment and impact on selected company
The circumstances for activities in the industry or financial global markets are referred to
as the world banking ecosystem. Anything substantial can have an impact such as the credit
quality of a government's economy. In this part, we'll go over some of the recent occurrences that
are expected to have an impact on PayPal's organizational effectiveness in the near future. The
following are the details:
PayPal could trade Crypto currencies using its platform: PayPal has added more
notches to its cap by allowing users to trade crypto currency on its platform. Customers are
allowed to purchase crypto currencies with their PayPal accounts. The company would make it

possible to buy crypto currency worth $20,000 per week, increase from the original cap of
$10,000. On the PayPal system, there are approximately 26 million businesses who accept bit
coins and other digital currencies. PayPal users would presumably gain from this type of system
when processing online transactions, the majority of which would be global. In the second
quarter of 2020-21, the corporation with 346 million users’ customer’s internationally collecting
fees worth $222 billion has the opportunity to expand its business operations (Zhang and et.al,
2021).
PayPal would not charge any extra fee to hold: The money earmarked for corona virus
alleviation is being laundered through the PayPal network. Official’s unearthed 700 cases of
money allocated for CARES Act and COVID-related assistance being redirected to major
websites like PayPal. This type of claim isn't helping PayPal operate its type of business, as any
unanticipated engagement would tarnish the company's reputation in a competitive environment.
The incentive for Social Security Assistance or the Salary Protection Program, worth $240
million, was discovered to be washed through such networks, according to Secret Service
officials.
Whenever criminal actions are carried out for a long time on the PayPal system, the
government will impose punishment. It would imply a blemish on the business organization and
impede its foreign operations. As a result, PayPal need a robust mechanism to prevent such
unlawful operations and to inform the authorities in the event of any questionable transactions.
That is because PayPal's suspected engagement in such illegal behavior might result in a large
punishment from the regulators, limiting the company's ability to expand into new areas such as
crypto currency trading, limiting its potential revenue (Hamidi, 2021).
Key elements of MNE
That is because PayPal's suspected participation in these fraudulent activities might result
in a hefty fine from the regulators, limiting the company's ability to expand into new areas such
as currency transactions, which would have a negative effect on the company prospects.
Sources of finance: PayPal gets its money from ordinary shares, government stock purchases,
and tax itemizing deductions, in addition to getting liabilities. In 2019, the company raised $3.7
billion to build its company's operations. The Modified Assess Quality was used to raise $5.5

billion by releasing lengthy obligations like fixed rate note and repayments. $2.5 billion of the
cash inflow had been used to repay debt, while $1.4 billion was utilised to buy equities on the
market place. It's worth noting that PayPal had a greater rate of unclaimed rewards in 2019, with
$3.1 billion compared to $1.8 billion in 2018.
However, due to variations in the volume of multiple payments in a competitive market,
this type of agreement is inherently risky. PayPal has a natural proclivity for debentures, which
increases the amount of debt the company owes and must repay on time. Rates of interest
frequently take advantage of the intensity of the circumstance, putting a strain on the business
earnings in exchange for making payments. In such a context, PayPal would be better off
focusing on equity funding, however this is vulnerable to market circumstances, and the COVID
crisis has exacerbated the position (Dimakou, Romero and Van Waeyenberge, 2021).
Capital structure theory: It's a capital structure hypothesis named after Merton Miller and
Franco Modigliani. Two assertions were offered by the MM theory.
Proposition I: It claims that a company's capital structure has no impact on its valuation. The
worth of two equal businesses would be the same, regardless of the type of financing used to
fund the properties. A company's worth is determined by its predicted potential income. Since
there are no taxes, it is.
Economic power, according to Proposition II, increases a firm's worth while lowering WACC.
It's when you have access to tax records.
Dividend policy: The dividend policy of a firm relates to a list of rules that govern how
the organisation distributes income or property to its stockholders. The dividend policy is
significant since it specifies the size, methodology, kind, and frequently of cash flows.
Organizations have two main alternatives for what to do about their revenues at the uppermost
levels of decision making: keep them or disperse them. Profits can be retained and used for a
variety of purposes, including new investments in growth and development. Financial gains can
be distributed to investors in the form from either share buybacks or dividends. The only reason
PayPal hasn't started paying out dividends yet is to sustain its strong growth, which implies it's
more advantageous to reinvest cash flow than than distribute it to owners. Shareholders should
always prioritise expanding in the firm above dividend payments, as it is the company's

expansion that has provided such excellent profits in previous years. However, because PayPal
does not pay a dividend, revenue traders may miss it. This is extremely frequent amongst growth
companies, especially those of us in the tech industry, because reinvesting profits in the firm
rather than distributing money to stockholders is far more lucrative.
Theory of dividend: According to this view, dividend patterns have no impact on stock
prices. In general, it implies that whenever a dividend is decreased today, the excess retained
earnings will be returned, allowing potential income and payments to rise. Shareholder dividends
are currently lower, but this is more than compensated by the increasing present value of
expected payouts.
The Board members of PayPal retains the authority to determine and distribute dividends,
although the company has never paid a dividend to the shareholders. PayPal has 3,553
stockholders, according to the NASDAQ, but it has a rigid practice of not declaring capital gains
and has no plans to do so in the near future. In practice, announcing rewards helps a company
establish traction in a global marketplace by acquiring international investors' interest. PayPal, on
the other hand, plans to change the approach, responding to investors' lengthy wealth demands
and instead rewards' short-term needs (Anantharajah, 2021). As a result of its many corporate
accomplishments, such as the right to trade, keep, and sources of financing, PayPal seeks rate
stability for its shareholders, with the shareprice rising by 4%.
Financial performance
PayPal's fiscal status is determined using accounting reports for the years 2019 and 2018
on several aspects such as profit, liquidity, efficiency, and investment.
Profitability ratio: The financial performance of a company is referred to as sustainability.
Profitability Ratios are accountancy ratios that quantify performance. Profitability Ratios are
indicators that have been used to evaluate a company's pricing power based on its capital costs,
gross profit, capital structure, assets, and shareholders' interest. It is a type of financial statistic
that aids in the assessment of an organization's growth utilizing data from a certain time period.
(All the calculation in Appendix)

Operating profit margin: This measures the capabilities of a firm in converting its sales into
profits after settling down its cost of production and variable expenses
According to the graph above, PayPal's operating profit margin was 14.20 percent in
2018 and climbed to 15.30 percent in 2019. It demonstrates that PayPal has indeed been able to
easily leverage its business activities in order to maintain relevance in the supermarket industry.
According to the restricted costs, the development in the operating margin was possible due to a
rise in the corporation's sales income as well as control of operational costs. PayPal played a key
role in lowering restructuring costs from $309 million in 2018 to $71 million in 2019, resulting
in an increase in profitability ratio (Ho, 2021).
Return on equity: This measures the profits earned by business through its assets. It ascertains
the efficiency of firm in converting its asset into profits

The financial indicator of performance obtained from the sales revenue allotted for
common stockholders supplying money to operate the company is the return on equity (ROE).
PayPal's return on investment (ROI) improved from 13.37 percent in 2018 to 15.22 percent this
year. It means that the company made more money in the local year, which will be given to its
investors. The firm’s ability to give revenue to stakeholders and make income for them is an
important indicator, as it reflects the corporation's capacity to accomplish the final potential for
generating money for them.
Liquidity Ratio: In order to meet its obligations, a company needs finances. A liquidity ratio
measures a union's capacity to pay its creditors when they are due. Liquidity ratios, in speaking,
represent liquid and are simple terms in composition. When a company fails to follow through on
its promises, it damages its confidence and credit history. Furthermore, this could lead to the
company's collapse or insolvency. As a result, knowing how to calculate liquidity ratios is
critical (Li, Goodell and Shen, 2021).
Current ratio: It is a liquidity ratio that determines a company's capacity to pay short-term or
one-year obligations. It explains to investors and analysts how a firm might use current

The current ratio measures an organization to meet commitments that are expected to maturity in
a brief span of time, such as a year. In speaking, a current ratio of ‘2' is considered optimal,
however in the instance of PayPal, it was 1.27 in 2018 and 1.43 in 2019. The data show that the
company has enough resources to complete its liabilities on time, and it tries to maximise its
capabilities to suit company requirements rather than maintaining them perfect. As a result,
PayPal's liquidity is sufficient to keep the business from going bankrupt (Abubakar, Sani and
Halidu, 2021).
Cash ratio: It is a measure of the capacity to satisfy the short – term obligations with its most
liquid assets and s and indicator of its short – term liquidity position

The cash ratio is a sensible approach to flexibility that determines a company's capabilities to
fulfill brief commitments using cash equivalents such as treasury stock. Although there is no
effective treatments ratio, companies generally choose a value of 0.5 to 1 as a guideline. In this
scenario, PayPal's cash ratios in 2018 and 2019 were 0.29 and 0.27, accordingly. It demonstrates
that the company has the required resources to satisfy its temporary responsibilities, although a
larger number in this area would be preferable to reduce the possibility of insolvency (Ishak,
Robbi and Nasir, 2021).
Efficiency ratio: An industry's efficiency ratio gauges how it maintains and uses its assets
internally. The productivity of a company can be measured by looking at the rotation of accounts
receivable, debtors, ownership, debts, and technology. The comparison of various capital,
industrial, and banking sector is also evaluated using efficiency ratios. This metric assesses how
effectively a corporation utilizes its assets. The ratio represented economic reliability. This ratio
is often used in comprehensive study to see how well a started offering to its competitors.
Accounts receivable: It refers to the time period in which the company collects its money from
its debtors. It is good to have less number of days for maintaining liquidity in business

Accounts receivable in days measures the time the takes to finance its owing from the
marketplace, indicating how efficient it is. PayPal's trade receivables were 7.39 days in 2018 and
7.68 days in 2019, showing that the company collects receivables from the marketplace in
around a week. A period of thirty days is usually perceived adequate for this purpose, yet PayPal
has accomplished an exceptional achievement in receiving its debts in such a brief period. It
demonstrates the effectiveness of the organization's collection department in obtaining dues via
targeted discussions requiring borrowers to make payments (Majer, 2021).
Accounts payable ratio

Accounts payable in days relates to the amount of days it requires the buyer to make its
providers, and it is common for the firm to postpone payment in order to take advantage of the
situation. PayPal's accounts payable were 7.74 days in 2018 and 6.23 days in 2019,
demonstrating that the company does not keep payments for long periods of time and instead
pays customers and vendors immediately. This number demonstrates that PayPal does not have a
business strategy of holding payments and clearing them as soon as possible. It is advantageous
to have positive business relationships with creditors.
Investment ratio:
Earnings per share
Earnings per share, or EPS, are a measure of a company's profitability dependent on the
amount of existing commodities versus its net profit. PayPal's earnings per share (EPS) was
$1.74 in 2018 and $2.09 in 2019, demonstrating that the business's ability is improving over
time. It is a crucial component for the business, and investors will be pleased to see how the EPS
is rising over time. PayPal is progressively expanding its reach into the global market, and its
rising earnings per share (EPS) is likely to draw the interest of current and future investors in
order to get adequate finance (Warin and Stojkov, 2021).
Price to earnings ratio

The price-to-earnings ratio, or P/E ratio, is a measurement of a stock price capacity to perform in
the longer term. PayPal's P/E ratio jumped from 47.85 in 2018 to 51.66 in 2019, indicating the
company's enormous potential in the present environment. The P/E ratio is quite advantageous,
implying a positive return on investments and presenting them with the motivation to purchase
equities in process of extracting higher profit in the marketplace (Tanko, Abdullahi and Mato,
2021).
Discussion on financial performance
 PayPal's recent capital structure has been remarkable, as seen by its profitability,
efficiency, and investment ratios. The sustainability component reveals that due to
improved revenues and the helps to lower operational costs, overall operating profit and
ROE grew. It benefited PayPal in terms of increased revenues, and the results look
stronger because it will be pursuing new commercial prospects.
 The liquidity component demonstrates that, despite the numbers being well below
regulatory requirements, the business has sufficient cash to cover its responsibilities and
avoid insolvency. The current ratio and cash ratio liquidity ratios show that PayPal has
the required funds to satisfy its brief commitments (Seabrooke and Tsingou, 2021).
 The accounts receivable and payable cost efficiency show that PayPal has the necessary
effectiveness to recover collections from the industry and conduction well before given

deadline. According to the ratios, such while around a deeper economic relationship with
corresponding debit and credit, resulting in greater business venture.
 The EPS and P/E ratios are investment statistics that demonstrate the organization's
capacity to create a higher rate of return in the nearest term. It suggests that PayPal has a
high likelihood of performing well in the coming years, and that its shareholders will
probably benefit (Della Posta, 2021).
CONCLUSION
As per the above report it has been concluded that PayPal's financial report suggests that the
company has sufficient basis for examining in the working principles. Events such as the ability
to purchase, transfer, and hold bitcoins on its system would be a game-changer, bringing in
additional users and revenue. However, PayPal could become a victim of tax evasion, stifling its
exponential expansion as it strives for more security. The company has a diverse finance base,
relying mostly on additional capital, trailed by convertible bonds. PayPal is well-known for its
financial results, but that does not care about paying returns to investors, preferring instead to
give a solid performance that regarding the company to diversify their portfolios. PayPal's
finances are quite solid, indicating its ability to construct solid business sequencing and
appropriately enable the market presence.

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APPENDIX