United Parcel Service’s IPO Essay.
Please answer the following questions. Limit your responses to four pages total. These should provide a good foundation for our next class discussion of the case. 1. How is UPS performing? Back up your assessment with your financial ratio analysis. What factors in your opinion are driving this performance? UPS has grown from modest beginnings to an organization that ships for that 15 million packages a day with over 6.1 million customer in more than 200 counties as well as an estimated 54 billion dollars in revenue.
UPS has had some ups and down, but for the most part have maintained strong. For example, UPS is a strong brand with a great market setting, cost and logistical advantage. They have built a strong supply chain management, distribution network and work force. One thing that really stuck out about the company, and as noted in the case is that many had joined the firm as part time workers while at college, and then stayed after graduation. It was not uncommon for employees to spend their entire working career at UPS.
This really spoke volumes for the company and showed the faith that employees placed in the company.
Some factors I believed needed improvement would be the customer satisfaction which was not on par with their competitors, and could have possibly looked at how management handled the finances of the company. Overall, I believe that UPS is a high performing organization that has built a brand and a successful organization from the bottom-up. When looking at financial ratio analysis for UPS, we must look at what set them apart from everyone else. If we look at the Profitability rations, we see the following reporting’s. From 1994-1998, we see Total Revenues increasing from $19,576 to 24,788, Total Operating Expenses increasing from $18,020 to $21,696 and Total Profit increasing from $1556 to $3090. These findings can easily justify why UPS is a best-of-breed company. 2. Does it make sense for UPS to carry out an IPO, i.e., what are the cost and benefits to going public for the firm? I do believe it makes sense for UPS to carry out an IPO, as it will give them an advantage over there competitors.
In 1999, the rapid expansion of internet shopping hinted at a boost for the B2C ground business and the increasing demand in faster delivery suggests growth opportunities in the air express segment. We must also look at international growth, and factor in how this will provide opportunities for growth. Per the case, UPS had $25 billion in annual revenues, which accounted for 6% of the United States GDP. It was also mentioned that they delivered close to 13 million packages to over 200 countries, and had contact with every Fortune 1000 company. By 1998, UPS captured an estimated 38% of the market in the express arena, and by 1999, UPS could handle six times as many on-line tracking requests as FedEx by investing in their infrastructure. Since its formation of UPS Logistics Group, UPS’s customers included Sprint PCS, Papa Johns, and Ford. By 1999, the Logistics Group was operating at nearly a $1 Billion in incremental revenue for the company.
On a day to day basis UPS coordinates and picks up about 13 million packages from over 2 million addresses to deliver to over 6 million commercial and residential addresses worldwide, unlike FedEx, UPS made no distinction between the operating facilities for air and ground operations. This allowed the company to optimize all of its assets. Another asset UPS had was its loyal workforce, which added to its overall success. Per the case, UPS spent hundreds of millions annually on educational assistance programs, time-tested policies, and on the job training, which in turn resulted in an industry-low turnover rate. Also an intuitive move on the part of management was to target three emerging trends they felt would define the industry; globalization, e-commerce, and supply chain management.
Like the case provided, UPS would be able to fund much of their growth opportunities through operating cash flows, thus, the benefit from the IPO would be to provide UPS with an attractive tax efficient medium of exchange to fund any subsequent acquisitions. Another plus for the company was that approximately, two-thirds of company’s equity was held by current and retired employees. . Employees that received stock awards use to hold on to them for as long as they remained with the company.
If they sold their stock, the company would buy back the stock at a price set each quarter by the board of directors, with the intent to have shareholders own 90% of the firm’s equity, while controlling 99% of the vote. 3. Calculating the following ratios for UPS and FEDEX in 1997/1998. Which firm scores higher on each of the ratios? Conceptually, how does the choice between operating lease vs capital lease impact the ratios?
a. Sales growth rate
b. NOPAT margin
c. Working capital to sales
d. Net LT assets to sales