Financial analysis between FedEx Corporation and UPS Inc

Financial analysis between FedEx Corporation and UPS Inc
April 13, 2011 Comments Off on Financial analysis between FedEx Corporation and UPS Inc Academic Papers on Business Studies,Sample Academic Papers admin

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Introduction

In this globalized and highly competitive world, companies have to show their best performance in order to survive in the market. Where customer wants to buy the best products at competitive rates, investors also wants to invest in the company which exhibits the best performance and yields them best possible returns. But how the performance of different companies can be gauged? To answer this question in the cases of FedEx and UPS, researcher of following paper selected the economic value added (EVA) method as the most excellent for comparative analysis. Some other important ratios were also calculated in order to figure out the true story behind the financial data. On the basis of the analysis, conclusion of the report is given at the end.

Economic Value Added- EVA

EVA is a method used to measure the financial performance by determining the economic profit of the company. It is actually a calculation of the amount by which the earning increase or decrease at the required rate of return for lenders or shareholders at comparable risk. There are certain advantages of using this method. For example, it is a continuous process and can be used for evaluation of performance over time. It is also economic in the sense that a business has to cover both of its operating and finance cost (Stern Stewart & Co 2009).

For UPS, this figure was positive over the considered number of years till 2007 as shown in figure 1. But in the year of 2007, EVA turned negative because of many factors like revenue growth rate decreased to 5% in the years 2007 as compared to the growth rate of the of 16% and 12% in the years of 2005 and 2006 respectively as shown in figure 9 in the appendix. This decrease in revenue is due to slowing down in the overall economic activity. Among other factors in the case of UPS is the surge in the cost of repairs and maintenance by 32%. The main driver of it is the high aircraft maintenance; some portion of this cost was counterbalanced by the fall in vehicle maintenance expenses (United Parcel Service 2008). Other reasons were the 4.0% increase in depreciation and amortization expenses, 11.0% increase in purchased transportation, and increase in the interest expenses by $196 million in 2008, the impact of currency exchange rates and lastly 39.0% increase in fuel expense (United Parcel Service 2008). But in the year 2008, EVA become positive because company’s total operating expenses lowered down by 6.1%. Management of the company has reduced this cost by cutting short its compensation and benefits expense for the employees.

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