FedEx vs UPS – Battle for Value Essay

The Battle for Value. 2004:

United Parcel Service. Inc. ( “UPS” ) and FedEx Corp. ( “FedEx” ) are two of the largest air bringing and cargo services. With the current transit understanding between the United States and China the market in which these companies conduct concern is traveling to turn. This is a positive understanding for both UPS and FedEx. significance that both companies are attractive in footings of puting. However. it is recommended that merely one of them should be invested in because they are really closely correlated to one another. Since this is the instance it is of import to look deeper into each company to find the degrees of attraction. Business Plan Overview

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Even though FedEx has the early lead on operations within China. one merely has to look at the European market place to measure how both companies will near the new concern environment post-agreement. Using the analogy of the tortoise and the hare. FedEx acts like the hare by rapidly raging up service by renting new equipment and puting up distribution hubs. This allows FedEx to acquire a head start and achieve early additions but this does non come without hazards. Within Europe. FedEx made a figure of hazards and finally sold its European hub to DHL and it is estimated that they had lost upwards of $ 1 billion from 1984-1992 on the European concern. Conversely. UPS is more like the tortoise by non being the first to market with a new service. UPS takes the clip to make their analysis and to place possible spouses in order to portion the hazards for a new venture. Within Europe. UPS did non come in the market place until 1988 but when they did enter. they did it by geting 10 European messenger services.

This gave UPS an already-established web with which to turn without the start-up disbursals that FedEx incurred. We can see that the same business-model attack is being used for China on both FedEx’s and UPS’s portion. FedEx was the first to come in the China market by geting air paths that service China in 1995 and presently they provide 11 hebdomadal flights to China. serving 220 metropoliss. On the other manus. UPS delayed their entry into the China market by set uping direct flights to China in 2001 but they have since partnered with Yangtze River Express to manage bundle bringing within China. Even with the late start. UPS presently provide 6 hebdomadal flights to China and service 200 metropoliss with their web. In a short sum of clip. UPS has leveraged their business-model to significantly catch up with FedEx’s web coverage and appears to be primed to excel FedEx in the near-term. EVA Analysis

When measuring attractiveness one of the first things looked at is each company’s economic value added. or EVA. EVA is “the value created or destroyed each twelvemonth by subtracting a charge for capital from the firm’s net operating net income after revenue enhancements. ” When comparing FedEx and UPS we can look at both their one-year and Accumulative EVA. Over the old ages 2000 to 2003 FedEx had an EVA of – $ 151. – $ 396. – $ 373. and $ 170 severally. UPS’s EVA we see a wholly different narrative. In the old ages 2000 to 2003 we see EVAs of $ 881. $ 599. $ 392. and $ 1. 195 severally. Looking at the cumulative EVA for FedEx and UPS we see a alteration from – $ 1. 653 to – $ 2. 252 and $ 2. 143 to $ 4. 328. severally. What this means that over the four old ages runing from 2000 to 2004 UPS has added much travel value to their company than FedEx has. EVA

FedEx Annual
$ ( 151 )
$ ( 396 )
$ ( 373 )
$ 170
FedEx Cumulative
$ ( 151 )
$ ( 547 )
$ ( 920 )
$ ( 750 )
UPS Annual
$ 881
$ 599
$ 392
$ 1. 195
UPS Cumulative
$ 881
$ 1. 480
$ 1. 872
$ 3. 067

MVA Analysis
Another of import factor in analysing a company is their market value added. or MVA. which is the present value of all future EVA. FedEx’s MVAs from 2000 to 2004 were $ 5. 313. $ 5. 993. $ 9. 542. and $ 11. 816 severally. UPS’s MVAs during that same period were $ 56. 928. $ 50. 820. $ 58. 384. and $ 69. 315 severally. These Numberss can be compared to the different cumulative EVA’s of each company. Again we see UPS out execute their rival FedEx in this class. MVA

$ 5. 313
$ 5. 993
$ 9. 542
$ 11. 816
$ 56. 928
$ 50. 820
$ 58. 384
$ 69. 315

Liquidity Ratios
In carry oning a liquidness analysis on both UPS and FedEx. including fiscal steps like current ratios. hard currency ratios. hard currency from operations ratios. and defensive intervals. UPS is clearly the more attractive investing pick for any investor’s portfolio. Liquidity ratios step a firm’s ability to run into its short-run debt duties. and are therefore a good index of a firm’s fiscal wellness. Between 2000 and 2003. UPS had a current ratio that remained significantly higher than its rival FedEx. This indicates that in an exigency state of affairs. if either company had to liquefy its current assets in order to pay off creditors. UPS would hold a much better opportunity at coming out of that state of affairs still in concern. while FedEx may be closer to bankruptcy.

However. since non all current assets included in the current ratio can be easy liquefied to pay off short-run debt. the hard currency ratio is frequently used to mensurate fiscal wellness. If Bratt’s client is more on the conservative side. the hard currency ratio may be more of import to them sing it merely takes into history the firm’s ability to pay off its short-run debt duties with hard currency and hard currency equivalents. UPS besides overshadows FedEx in footings of this ratio. UPS’s mean hard currency from operations ratio during these old ages is besides higher than FedEx’s. This shows that UPS is better able to cover its short-run debt with hard currency from day-to-day operations than FedEx is. UPS besides has a higher defensive interval than FedEx. bespeaking that it could keep runing with its current assets without any extra gross revenues longer than FedEx could. Give these liquidity ratios entirely. UPS is the better investing pick.

Profitability Ratios
When you compare the four-year period of 2000-2003 every bit good as the larger period of 1992-2003. both UPS and FedEx show similarities in the manner their profitableness ratios are swerving. The Net Net income Margin ( “NPM” ) tendency lines follow the same ups and down. with merely the magnitude distinguishing UPS from FedEx. UPS has invariably been the more profitable company through both periods of clip. averaging a NPM of 9. 13 % for 2000-2003 and 6. 12 % for 1992-2003 piece FedEx has merely averaged 3. 47 % for 2000-2003 and 2. 69 % for 1992-2003. The same can be said about the Return on Equity tendency lines. FedEx has lagged behind UPS through the both clip periods and shown by the undermentioned graph –

Solvency Ratios
In taking into history each firm’s solvency ratios. UPS one time once more comes out on top as the better add-on to a all-around investing portfolio. Solvency steps like debt/equity ratios. times involvement earned ratios. fixed-charge coverage ratios. capital outgo ratios. and hard currency from operations/debt ratios step a firm’s ability to run into its long-run debt duties. In comparing debt to equity ratios. UPS and FedEx are about indistinguishable over the 2000-2003 period. Although FedEx’s ratio is somewhat lower. it isn’t so much lower that it gives FedEx the competitory advantage or border in the market. It appears that neither house has taken on more debt than they can manage. In footings of paying down that debt. UPS has a much higher times involvement earned ( TIE ) ratio than FedEx. Looking at the chart below. UPS can cover its involvement disbursals with its pre-tax net incomes 3 times more than FedEx can. and is much less vulnerable to boost in involvement rates. This is particularly impressive when you consider that UPS has twice every bit much long-run debt as FedEx.

FedEx’s solvency besides appears weaker when you take into history fixed charges like rental or lease disbursals. UPS’s deficiency of these disbursals consequences in a fixed-charge coverage ratio equal to its TIE ratio. while FedEx’s norm is dramatically lower. In add-on to being the more dependable house in footings of its ability to pay off long-run debt. UPS besides has a higher capital outgo ratio. UPS has besides increased its capital outgo ratio while FedEx’s has remained instead dead. This shows UPS’s ability to take its free hard currency flow and put it back into the company through long-run plus acquisitions. showing the potency for future growing of the company. It besides shows that UPS is gaining somewhat more from its capital outgos than its disbursement on them. The overall hard currency from operations to entire debt ratio is comparatively equal between UPS and FedEx. However. UPS’s ratio has been increasing over the last twosome of old ages. while FedEx’s has decreased. Taking all of these solvency measures into consideration. UPS still appears to be the more attractive investing option for Bratt’s client.

Operational Efficiency Ratios
In footings of operational efficiency steps. like mean yearss outstanding. working capital turnover. fixed plus turnover. and entire plus turnover. FedEx appears to hold the advantage. Although UPS may take a small spot longer to roll up on its histories receivables. and may take longer to change over capital into gross revenues. it is still maximising stockholder value merely every bit much as FedEx. and in a less hazardous manner.

Stock Price Analysis
When you compare the stock monetary value analysis for both FedEx and UPS. both companies have returned positive Compound Annual Growth Rates ( “CAGR” ) for both the 2000-2003 clip frame every bit good as 1992-2003. Over the longer period. UPS has returned 20. 89 % versus 18. 18 % for FedEx but for the more recent 2000-2003 period. FedEx has returned 3. 94 % versus 1. 95 % . This discrepancy in CAGR can be explained by the perceptual experience that FedEx was a growing stock and paid no dividends while UPS continually paid a dividend. This can besides be seen when you compare the Accumulative Market-Adjusted Returns ( “CMAR” ) of both UPS and FedEx. Due to the inclusion of the dividend payments. UPS surpassed FedEx in this analysis by bring forthing a 551 % CMAR versus FedEx’s 373 % .

Stock Price as of Dec. 31 of

9. 25
69. 00
58. 75
54. 50
63. 08
74. 55
20. 89 %
1. 95 %
10. 19
54. 81
35. 50
40. 00
53. 95
63. 98
18. 18 %
3. 94 %

Both UPS and FedEx are companies that have a positive tendency and are good deserving puting in. However. as both companies are closely correlated. if it recommended that you merely put in one of them. It is Bratt’s recommendation to put in UPS. UPS has the long-run scheme in topographic point to guarantee more stable returns as opposed to FedEx. FedEx may hold short-run additions but these additions are non sustainable and FedEx is at hazard for inauspicious returns in the mid-term while UPS continually shows a proved track-record of steady additions through the short and long-run.


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