PYPL, PayPal Holdings Inc.

Will it survive?

• Can it pay its interest? 13.8×
  Comfortable
  Operating income $6.1B ÷ interest expense $441M
  What this means

  Operating profit covers interest with the kind of margin Graham wanted for a defensive holding. Necessary, not sufficient, it says solvent, not cheap.

• How heavy is the debt, net of cash? +$435M
  Net cash
  Cash $8.0B + ST investments $2.4B − debt $10.0B
  What this means

  Cash and short-term investments exceed every dollar of debt by $435M, on net the company owes nothing, and can act from strength when others can't. Net debt is the leverage figure that matters: the cash is already set against the debt. Strategic or illiquid investments aren't counted here.

• How long is cash tied up? —
  Not enough data
  What this means

  The filing data didn't include the inputs for this check.

Is it a good business?

• Return on invested capital 16%
  High through the cycle
  10-yr median, range 10%–23%; 23% latest = NOPAT $5.0B ÷ invested capital $22.2B
  Industry peers: median 14%
  What this means

  The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; a return below the cost of capital (~8%) erodes value as a business grows rather than building it — the test Buffett weighs most. The headline is the median of the last 10 years (it ran 23% most recently), so one peak or trough year doesn't set the verdict. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.

• Owner-earnings margin 19%
  High through the cycle
  10-yr median margin, range 14%–30%; latest $5.6B = operating cash $6.4B − maintenance capex $852M
  Industry peers: median 21%
  What this means

  What an owner could take out without starving the business: operating cash less the maintenance capital it must spend to hold its position — Buffett's owner earnings. That's 17% of revenue this year, a 19% median across 10 years. Treating stock comp as the real expense it is (less $1.0B of SBC) leaves $4.6B.

• Are earnings backed by cash? 1.23×
  Cash-backed
  Cash from ops $6.4B ÷ net income $5.2B
  What this means

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy, growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? 111%
  Returned more than it generated
  Dividends + buybacks $6.2B ÷ Owner Earnings $5.6B — this fiscal year
  What this means

  The company returned more than it generated: against $5.6B of Owner Earnings, $6.2B (111%) went back to shareholders, $130M dividends, $6.1B buybacks — the excess came from the balance sheet or borrowing, not the year's operations. Net of $1.0B stock comp, the real buyback was about $5.0B. Sustained, that pattern draws down cash or adds debt; the net-debt line above shows where it stands. This year's proportion is 111%; across the record (2016–2025) it is 75%, the capital-allocation section below.

• Investing or harvesting? 0.88×
  Maintaining
  Capex $852M ÷ depreciation $963M
  What this means

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.

The promise and the pay packet

• What does winning a customer cost? 7%
  Sells itself
  Selling and marketing $2.3B ÷ revenue $33.2B
  What this means

  Sales and marketing as a share of revenue, kept apart from administrative overhead because it answers a different question: how much a business must spend to win the next customer. A company whose product pulls customers in spends little here and keeps the difference; one that must buy its growth is running to stand still, and the spending has to keep rising for revenue to keep rising. Read it beside the growth rate, not alone.

• Is the buyback buying ownership, or mopping up? 3.0%
  The count is genuinely shrinking
  Stock compensation $1.0B (fiscal 2025), 3.0% of revenue · repurchases $6.1B · diluted shares -16.4% since 2022
  What this means

  Stock handed to employees is a real cost paid in the owner's own currency: it is charged against profit, but the shares it creates are permanent. Many companies repurchase stock at the same time, which looks like a return of capital and often is not — if the count barely moves, the cash merely cancelled the pay packet and bought the owner nothing. The three states worth telling apart are a count genuinely shrinking, a count standing still despite large repurchases, and a count rising because the issuance was never offset at all.

Graham’s defensive tests · 4 of 6 met

Graham’s numerical criteria for the defensive investor (The Intelligent Investor, ch. 14), run on the filings. A floor of safety, not a buy signal; many fine modern businesses fail his strictest liquidity rules by design.

• Adequate size Pass
  Revenue ≥ $2B · $33.2B
  What this means

  Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.

• Strong liquidity Miss
  Current ratio ≥ 2× · 1.29×
  What this means

  Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.

• Conservative debt Pass
  Debt ≤ working capital · $10.0B vs $13.3B WC
  What this means

  Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.

• Earnings stability Pass
  A profit every year (10-yr record) · no losses
  What this means

  Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.

• Dividend record Miss
  Uninterrupted dividends · 1 of 10 yrs
  What this means

  An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.

• Earnings growth Pass
  Earnings +33% over the record · +159%
  What this means

  At least a third more earnings than a decade ago, averaging three years at each end. Net income (not per-share), so stock splits don't distort it, buybacks and dilution show up in the share-count line instead.

• Moderate price —
  P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
  What this means

  Graham's valuation gate, the wall he kept between a sound business and a sound investment. Three-year average earnings are $5.31/share (latest year $6.12), the averaged base the calculator's gate runs on, and book value is $23.68/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.

Durability & moat, 2016–2025

Whether the record’s returns held, and what the capital reinvested earned.

• Profitable years 10 of 10
  What this means

  Never lost money over the record, the earnings stability Graham insisted on.

• Return on capital ≥ 15% 6 of 8 yrs
  What this means

  A moat shows up as a high return on invested capital that holds year after year, not one good vintage.

• Operating margin 15% → 17% (3-yr avg ends)
  What this means

  Through the cycle the operating margin widened — about 15% early to 17% lately, median 15% — pricing power intact or improving.

• Reinvestment, incremental ROIC 43%
  What this means

  Every extra dollar the business reinvested came back at a high incremental return — the lens GBM read for a moat that reinvests rather than merely harvests. The record and the 10-K are where you check whether the rate holds.

• Owner earnings growth +12%/yr
  What this means

  Owner earnings grew about 12% a year over the record.

• Worst year 2022 · 13.9% op. margin
  What this means

  Stayed profitable even in its hardest year, the resilience that survives recessions.

• Share count −2.5%/yr
  What this means

  The share count is shrinking, buybacks are quietly growing your slice of the business.

• Dividend record paid
  What this means

  Paid a dividend in 1 of the years on record.