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The Battle for Value 2004
Competitive Strategies
• Inventor of the “HUB”
system
• “absolutely positively
overnight” ad campaign.
• Expanding services,
acquiring more trucks and
aircrafts.
• Raising capital
• “People-Service-Profit”
philosophy
• JIT system
• Technological Innovations
• Expanded package-delivery
to every address in the U.S.
• Half-priced over-night letters
• Aggressive Acquisitions
• Large investment:
- Technology
- Aircrafts
- Facilities
Factors
(+) Innovated
(+) Purchased Own Planes
(+) Largely free of Unions
(-) Initially too Aggressive in
Expansion
(+) Superior Financial Returns
(+) Conducive Work Climate
(+) Expressed Delivery Leader
(-) Short-term goal oriented
(-) Quality Problems
(-) Union Strikes
(-) Slow and Plodding
(+) Financial Conservative
(+) Long-term Goals
(-) Late Overnight Market Entry
• US & China Air Transportation Agreement
• Airline & trucking deregulation
ROA
2003
Return on Assets
The higher the return the better the profit performance for
the company
Formula:
Net Income / (Fixed Assets + Net Working Capital)
UPS gain higher ROA in the recent years
ROE
2003
Return on equity
measures the rate of return on the ownership interest of the common
stock owners.It measures a firm's efficiency at generating profits
from every unit of shareholders' equity. ROE shows how well a
company uses investment funds to generate earnings growth
ROE at 15%-20% considered as good.
UPS gain better ROE in the recent years
WACC
WACC
A company’s assets are financed by either debt or equity, as an
increase in WACC notes a decrease in valuation and a higher risk.
Formula
WACC = [Kd(1-t) x D/(D+E)] + [Ke x E/(D+E)]
UPS gain lower WACC in the recent years
EVA (Annual)Economic Value Added:
A measure of a company's financial performance based on the residual wealth
calculated by deducting cost of capital from its operating profit (adjusted for taxes on a
cash basis). (Also referred to as "economic profit".)
Formula
EVA = Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital)
UPS gain higher EVA in recent year
MVAMarket Value Added:
The higher the MVA, the better. A high MVA indicates the company has created
substantial wealth for the shareholders. A negative MVA means that the value of
management's actions and investments are less than the value of the capital contributed
to the company by the capital market (or that wealth and value have been destroyed)
Formula: MVA = company’s mkt value – invested capital
UPS gain higher MVA in recent year so UPS management can create value to the
company more than Fedex
Net profit Margin
2003
Net Profit margin
a measure of profitability. A low profit margin indicates a low
margin of safety: higher risk that a decline in sales will erase
profits and result in a net loss, or a negative margin. Profit
margin is an indicator of a company's pricing strategies and
how well it controls costs
Formulas
Net Profit Margin = Net Profit / Revenue
UPS have lower net profit margin so better cost controlling
Stock Price,Dec 31
The price of stock of UPS higher than FedEx.
The value of the company also reflect in the price of stock which come from the
performance of the company,.
Dividends per share
Dividend Per Share
Dividends are a form of profit distribution to the shareholder. Having
a growing dividend per share can be a sign that the company's
management believes that the growth can be sustained.
Formula
Dividend Per Share = Dividend / No. of Shares
Dividend per share of UPS higher than FedEx with growing rate.
Annual Return
FedEx 20.25% 87.73% 46.93% 88.04% 157.06% 214.72% 438.04% 248.47% 292.64% 429.57% 528.02%
UPS 12.16% 27.03% 41.89% 58.11% 66.22% 116.22% 646.95% 535.14% 489.19% 581.95% 705.95%
Standard&Poor's 500 Index 7.06% 5.41% 41.36% 70.01% 122.72% 182.12% 237.21% 203.02% 163.50% 101.93% 155.20%
Both FedEx and UPS have annual return higher than Standard and Poor’s 500
index but UPS have higher annual return compare to FedEx in recent years.
Company of Excellence
Due to given financial data, UPS tend to have better performance than
FedEx in these following instruments.
• Return on Assets
• Return on Equity
• WACC
• Economic Value Added
• Market Value Added
• Net Profit Margin
All these 6 ratios analysis show the
effectiveness of management in create
the value to the company which will be
shown on Stock Price, Dividend per share
and Annual Return. Dividend depend on
Revenue which show the performance
of company,