Fedex vs. Ups

THE BATTLE FOR VALUE, 2004 FEDEX CORP. VS. UNITED PARCEL SERVICE, INC. executive Summary As the U. S. package address business segment matured, transnational segment became the battle ground for the two package saving giants FedEx and UPS. FedEx is considered to be the innovative, entrepreneurial, inventor of customer logistical management, and an ope rational leader. UPS, on the other hand, is considered to be medium-large, bureaucratic, and indus pick up fol demoralise, although UPS is shedding this negative image with newer innovations. FedEx Corp. started in 1971, by the block off of 2003 it had nearly $15. one thousand meg in assets, net income of $830 million on revenues of about $22. 5 billion and shipped to a grander extent than 5. 4 million packages daily. UPS, Inc. founded in 1907, by the end of 2003 it had $28. 9 billion in assets, net income of $2. 9 billion on revenues of $33. 4 billion, and with excellent (AAA) bond rating. The struggle to deliver judge and d ominate the package delivery market between FedEx and UPS has r sever all in allyed titanic proportions and intelligibly evident from their respective expenditures. Between 1992 and 2003, capital expenditures for FedEx and UPS rose at an annualized prise of 34. 64% and 36. 78%, respectively.Currently two companies be unified each others investments in capital almost exactly. Placing ourselves in the circle around of the battle of giants and using the data provided in the Exhibits 1 through 11, we try to answer the following questions in this case analysis. 1 Who is creating to a greater extent repute and how? 2 Who is destroying the time pry? FedExs egression strategy is Produce pucka financial re change forms for shareholders by providing utmost take to be added supply chain, transportation, business and tie in information services through focused operational companies competing collectively, and managed collaboratively under FedEx vane.UPSs egression strategy is Serve the evaluation distri neverthelession, logistics and commerce call for of customers with excellence and lever in all services. With strong financials and broad employee ownership provide want-term competitive returns to the shareholders. FedExs financial ratios are up(p) while UPS has remote reform ratios in liquidity, leverage, and gainfulness. UPS has consistently paid and increase dividends while FedEx just started endureing dividends in 2003. FedExs EPS comp. annual growth rate (CAGR) 1992 -2003 is 27. 54% compared to UPSs 13. 9%. However, since going public 1999, UPS has break dance EPS Compounded Annual growth rate (CAGR) compared to FedEx 34. 30% vs. 6. 98%. UPS has off the beaten track(predicate) better Cum. ingrained market returns than FedEx 705. 95% vs. 528. 02%. UPS has far better EVA(2003) compared to FedEx $1,195 million vs. $170 million. MVA(2003) for UPS as well as far better than FedEx $11,816 million vs. $69,315 million. By facial expression at the calculations above we can clearly say that twain UPS and FedEx created value, but UPS has created more value for shareholders than FedEx. Case Analysis DetailWe start with analyzing two companies using the data provided in the book in the exhibits 1 through 11. We start the economical profit analysis of two FedEx and UPS by refreshen and analyzing the Return on dismiss Assets (RONA). A Return on Net Assets Ratio determines whether the institution is financially better off than in prior years by measuring total economic return. A declivity in this ratio may be appropriate and even warranted if it reflects a strategy to better fulfill the institutions mission. An meliorate trend in this ratio indicates that the institution is increasing its net assets and s likely to be fitted to set aside financial resources pic to strengthen its future financial flexibility. feeling at the graph generated from data presented in Exhibits 9 & 10, raises from 1992 to 1994 the ratio for FedEx is improving while it is decreasing for UPS, although it is understood well below UPS figures. A ready(a) look at Exhibit 4, we did not think any competitive developments to support the movement of the ratio for both companies. To get more penetration into this movement for FedEx and UPS we check the Activity Analysis specifically the Asset turn over ratios for both companies.Review the Fixed asset turnover and Total asset turnover for FedEx and UPS for the period 1992-1994, it is observed that UPS is utilizing its assets better during this period know graph below. pic Although by itself this ratio number can be misleading, since companies with lower metes can drop higher asset turnover rations. In sanctify to understand the truly impact of asset turnover ratio we compulsion to combine with margin ratio and then determine if its set strategy by UPS that is generating this high ratio or in detail UPS is overmuch more efficient in using its assets than FedEx.L ooking at the numbers for this period for both companies using Exhibits 2&3, we observed that UPS has far better Net profit margins compared pic to FedExs, that points to high asset turnover ascrib equal to(p) to its pricing strategy. As we see in the above graph, UPS Asset ratios are declining while FedEx assets ratios are improving and correspondingly FedEx-RONA is also improving though lacking behind UPSs RONA ratio even though FedEx has greatly improved their asset turnover ratios, the Net win margins are gloss over well below UPS (see Net Profit Margin graph above). Does this blind drunk UPS is creating more value than FedEx as shown by RONA graph?We exact more concrete data to answer this question. Although RONA has a strong virtue of usage, as compared to traditional methods for measuring company success, is that it also considers the assets a company uses to reach its output. However, RONA cant alone be used to determine who is creating value to destroying value, becau se managers powerfulness bypass value-creating activities because they would reduce RONA (a risk if RONA is greater than WACC), or they might undertake value-destroying activities because they would increase RONA (if RONA is less than WACC).Moreover, since RONA does not explicitly measures capital charges, we need to crush Economic Value Added to determine who is creating or destroying value. Ultimately maximise EVA should rather be seen as the key financial success than maximizing RONA. pic Above graph shows from 1992 to 1994 both companies were destroying Economic value, UPS less than FedEx. 1995 UPS created $217 million value while FedEx was fluid in the negative territory. This is when UPS launched guaranteed 8 A. M. overnight delivery (Exhibit 4 Timeline of warlike Developments).This was frontal attack on FedEx who has offers 10 A. M. delivery (Exhibit 4 Timeline of Competitive Developments). UPS EVA dropped to negative $138 million due to the strike by its union workers which cost UPS $700 million revenues. Interesting to see from the graph is that FedEx could not capitalize on this opportunity as its EVA was down by $215 million. In fact the graph shows, FedEx unmake EVA from 1992 till 2002 and the only year it was able to create EVA was in 2003 by the amount of $170 million compared to UPS of $1,195 million.In year 2003, UPS EVA was whopping 703% more than FedEx. Reviewing numbers and graph, in the tech spill the beans of 2000-2002, UPS still maintain positive EVA while FedEx delivered negative EVA. Looking at the above graph and correlating it against the Exhibit 4, the positive EVA of FedEx can be lined up with Kinkos Purchase in year 2003. pic Analyzing the cumulative Economic Value Added (EVA-Cum) graph, from year 1992 to 2003, FedEx destroyed $2. 2 billion ($2,252 Million) economic value while UPS has created $4. billion ($4,328 million) in economic value. This answers the questions put forward in the executive summary. But we will go fu rther and analyze the foodstuff Value Added (MVA) for each company to support our argument that UPS created more value than FedEx. pic Since going public in 1999, UPS has created close to $70 billion in Market Value Added (MVA) as compared FedExs $11 billion MVA. This shows UPS has created upstanding values for the shareholders far better than FedEx.Since FedExs MVA is not negative, it shows they did not destroyed value for the shareholders but UPS created more value for the shareholders. This is amazing achievement for UPS that is considered big and bureaucratic while FedEx is considered the innovative. What is the key to UPSs success even macrocosm heavily unionized? The Key is efficiency. Business week wrote Every channel is timed down to the traffic light. Each Vehicle was engineered to exacting specifications. And the drivers survive a daily routine calibrated down to the minute. We can analyze UPSs efficiency by analyzing the ratios and comparing them against FedExs finan cial and analytical ratios. Using exhibits 2 and 3, graphing the data, comparison shows UPS exercise ratios are weakening and FedEx is doing great job in improving. pic The Average eld outstanding for UPS have increase from approximately 25 in 1992 to over 50 in 2003. FedEx on the other hand, has done better job to manage the average days outstanding. Average Days outstanding by itself doesnt mean much and it must be analyzed with other activity ratios to close down result. pic The work capital turnover comparison shows except for 1993 FedEx has done better compared to UPS. The WC_Turnover for FedEx was 41. 25 in 2003 compared to 7. 72 for UPS, indicated FedEx is generated far more sales compared to cash it uses to depot these sales as compared to UPS. pic FedExs fixed and total asset turnover ratio is better than UPS. This indicates FedEx is using its asset better than UPS to generate sales. Although by itself this ratio number can be misleading, since companies with lower mar gins can have higher asset turnover rations.In order to understand the real impact of asset turnover ratio we need to combine with margin ratio and then determine if its pricing strategy by FedEx that is generating this high ratio or in fact FedEx is much more efficient in using its assets than UPS. Looking at the numbers for 2003 for both companies, FedEx with 3. 69% Net profit margins compared to UPSs 8. 65% seems to have high asset turnover due to its pricing strategy. The above graph shows that activity financial ratios of FedEx are improving while they are weakening for UPS. beside we analyze Liquidity Ratios of both companies to see which company has the ability to pay its obligations in timely manner with minimal cost. pic The Current Ratio of UPS is better and improving than FedEx. The anomaly in 1999 for UPS was due to the public offering of its securities. The graph shows both companies can service their short-term debt, its UPS that has more efficient operating cycle than FedEx. The graph shows FedExs CR is improving but still behind its top competitor UPS. pic UPS has better cash ratio and therefrom can service its short term debt more comfortably than FedEx.This also indicates that UPS has less debt than FedEx too. The anomaly in 1999 is due to public offering of UPS securities. The graph shows UPS Cash ratio offer better safety of margin than FedEx when it call for to service its debt. Although FedExs Cash Ratio is improving but it is still behind UPS. Reviewing the Cash flow from operations ratio and Defensive time interval shows that UPS has better liquidity ratios than FedEx and can handle short term cash requirement more efficiently, though FedExs ratios are improving.The above graphs show UPS has better liquidity ratios than FedEx. Now we review the Long-Term Debt and Solvency analysis of both companies. The below graph shows FedEx is more leveraged than UPS, though FedExs leverage mooring is improving. Graph shows UPSs leverage was high in 2001 and 2002, we can find the answer in Exhibit 4 Timeline of Competitive Development UPS acquired all-cargo pedigree service in Latin America 2000 and acquired Mail Boxes Etc. retail franchise in 2001. While in 2003 FedEx acquired Kinkos which could explained higher leverage compared to UPS. pic The Capital Expenditure Ratio shows, both companies actually almost matching each others Capital expense. Exhibit 4 Timeline of Competitive Developments shows the details of the major Capital expenses by both companies in competition to gain competitive advantage. Both companies made acquisitions to grow in unalike fields. pic The above graphs shows UPS is consistently leveraged low while FedEx is improving. Next we analyze the profitability analysis for both companies. Data from Exhibit 2 & 3 shows, FedExs profitability is worse UPS.PS beat FedEx in almost all profitability ratios by handsome margin. It is evident from 2003 numbers for Net Profit Margins 3. 69% and 8. 65% for Fed Ex and UPS respectively. The following graph shows the comparison of profitability of both companies. pic Finally, we review the growth analysis of both companies. Exhibit 2 & 3, provides the depicting that shows FedEx growth is higher than UPS. pic The below graphs summarizes and compares both companies EPS, Dividend payout, Stock price, and PE ratios. picUPSs stemma price shows since going public, it has delivered better value to its shareholders than FedEx. pic The above graph shows, UPS has consistently paid and increased dividends to its shareholders, while FedEx started dividend payout in 2003. pic UPS has a higher EPS growth than FedEx implies that FedEx has been unable to translate net income growth into high EPS growth. Hence, our analysis conclude that both UPS and FedEx created value for their shareholders, but UPS created more value than FedEx in the long run.