EMBA 810 Financial Statement Analysis
Summer 2014 – EMBA 20
12 July 2014
United Parcel Service Initial Public Offering Case Analysis
Darrell W. Kent, Jr.
1. What are the key success factors and risks for UPS given its business strategy?
United Parcel Service’s (UPS) strategy is to be the market leader within the package delivery industry with operations primarily focused on international air and ground package delivery services and secondary focus on the logistics and supply chain management services. UPS management is now prepared and ready to bring UPS from a privately owned firm to a company that is publicly traded on American and international stock exchange ...view middle of the document...
Long-term debt is the primary line item is fairly low considering the industry which UPS services.
iii. Income Statement (Exhibit 7)
d. Critical accounts are revenue, operating expenses, interest expense, and the one-time tax assessment paid in 1999.
i. The revenue line item consistently grows for UPS from 1994 – 1999 illustrating the potential for growth.
ii. The operating expenses are somewhat high, but UPS is still able to turn a decent operating profit year-over-year.
iii. As expected, interest expense grows year over year as the company invests in technology upgrades.
iv. The one-time tax assessment paid in 1999 in the amount of $1.442 billion was due to an unfavorable ruling of the U.S. tax court. Excluding the impact of this one-time charge, net income for 1999 would have been $2.325 billion.
3. How is UPS performing? What are the factors driving this performance? Is the current performance likely to be sustained? Why or why not? What are threats to sustainability of UPS’s performance?
The figure below details a ratio analysis performed on UPS. The factors which drive UPS’s performance are included in the liquidity, activity, leverage, and profitability ratios displayed in the table. The strong performance outlined in the table show UPS as a profitable company with the ability to collect on receivables fairly quickly and a company that is not extremely leveraged. With the addition of technological upgrades and the formation of UPS Logistics Group, it is quite evident that this current performance is highly likely to be sustainable. In addition to technological upgrades and the formation of UPS Logistics group, current performance is likely to be sustained due to the following reasons:
i. Global Growth – International exports and intra country operations.
ii. E-commerce – Internet shopping growth
iii. Supply Chain Management – “Moving conveyor belt” and logistics expertise
iv. Faster delivery through the air
The major threat to the sustainability of UPS is the United States Postal Service. While the USPS does not hold nearly the market share of UPS, the USPS is a government owned and operated entity. In theory, at any given moment, U.S. policy and law makers could potentially create a law requiring certain packages and mailings be supported by the USPS. While this is highly unlikely to occur, the USPS could potentially challenge UPS with cheaper ground rates delivered within the U.S. UPS also faces increasing competition from FedEx, USPS, and DHL threatening UPS ground and international delivery markets through consolidation and targeted segment competition.
4. How is FedEx performing? How, if at all, does its performance and plans affect your assessment of the sustainability of UPS’s current performance?
FedEx is performing moderately well when compared to UPS. Looking at the key financial ratios depicted in the table below it is evident that FedEx is...