Another factor that should be taken into consideration is that of overall strategy. Financial statements are snapshots, and sometimes it can be difficult to discern from looking at a small sample of them the firm's overall direction. Key strategic decisions can have a significant impact on the financial statements for a limited period of time. For example, during the period studied FedEx was having trouble absorbing Kinko's which it had purchased. These difficulties are not fully reflected on the income statements for 2005 and 2006. Instead, they appear as an unusual item (a writedown) in 2008. Likewise, UPS took a $6.1 billion writedown in 2007, which made the financial figures for that year look terrible. There is always strategic context in financial statements. That context is not always readily apparent, but it should be taken into consideration when analyzing the financial statements.
The potential impact of mergers and acquisitions should also be taken into consideration. A major acquisition can have a significant impact on a firm's financial statements for a year or more. Those impacts are not generally separated out from the rest of the operations. As a general rule, an evaluation of financials should consider metrics more often used in managerial accounting, such as the year-over-year sales of ongoing operations. This measure of organic growth is a more accurate indicator of a firm's success than the overall figures.
Another factor that should be taken into account is the firm's responsiveness to the economic environment. This can be estimated based on the beta, or via a more complex regression. In the case of UPS and FedEx, both firms are considered economic bellwethers because they draw their customers from corners of the economy. The true measure of success for these firms is not their raw performance numbers like sales growth, but in their growth compared to overall economic growth.
One major implication of this is that we must also consider the timing of the financial statements when making a comparison. The FedEx fiscal year ends May 31st; UPS' fiscal year ends December 31st. It is difficult, therefore, to make direct performance comparisons. If we assume that the performance of each of these companies has a high degree of correlation with the market as a whole, then direct measurement should be over the same time frame. For example, we see a weakening in the performance of UPS in fiscal 2006. For that company, this includes the entire year of 2006. For FedEx, this only includes the first five months of 2006.
If, however, the economy tanked in the latter half of 2006, that would explain the difference in the performance of these two firms. (This scenario is more relevant to 2008, but the implications for comparative financial analysis remain the same).
The courier business operates, for the most part, as a two-company industry. The #3 company, DHL, announced that it was exiting the U.S. market, and worldwide enjoys a much smaller market share than either UPS or FedEx. Other companies compete in the business, but for all intents and purposes UPS and FedEx dominate the global courier market. As such, one of the most important metrics for measuring performance is not found on the financial statements. Market share is a critical measure. When an industry has this two-company structure, the only true measure of success is market share. There are many segments of the business, and market share is the key measure for each of them. A full analysis of the relatively success of UPS and FedEx can only be conducted with an understanding of the market share performance each firm enjoyed during the period being analyzed. Market share represent so many things in this industry. Despite low switching costs, customers are relatively loyal. Therefore, to win a customer is to bring a customer on board for the long-run. That means that the purchase decision repeats,-month over month and year over year, unlike with many other purchases. Thus, market share is a critical measure that should be taken into consideration.
Because of the high fixed costs associated with owning and operating aircraft, another significant consideration is that of capacity utilization. The courier business is about volume, the reason being that volume fills capacity that already exists. UPS and FedEx approach their aircraft in the same way that airlines do, in terms of load factor. Thus, the company that fills the most space on the most planes is the more successful of the two. Another important, related, factor is capacity management. FedEx has flexible leases with its planes to help them manage capacity in the event of a download. They also have substantial flexibility in their staffing. These managerial tactics can dictate a firm's ability to withstand economic downturn. They will not be revealed during strong economic times, which is why performance is always best measured over the long run.
Working Capital = current assets - current liabilities
Current ratio = current assets / current liabilities
Quick ratio = (cash + ST securities + receivables) / current liabilities
ROE = Net Income / Avg Total Equity
ROA = Net Income + Interest / Avg Total Assets
Net margin = Net Income / Revenue
Turnover (Asset) = Sales / Avg Total Assets
P/E = Price per share / earnings per share
A/R Turn = Sales / Avg Accts Receivable
Days sales a/R = 365 / AR Turn
Debt ratio = Liabilities / Assets
D/E ratio = Liabilities / Equity
Financial data in U.S. Dollars
Values in Millions (Except for per share items)
Period End Date
Stmt Source Date
Stmt Update Type
Cost of Revenue, Total
Selling/General/Administrative Expenses, Total
Research & Development
Interest Expense (Income), Net Operating
Unusual Expense (Income)
Other Operating Expenses, Total
Interest Income (Expense), Net Non-Operating
Gain (Loss) on Sale of Assets
Income Before Tax
Income Tax - Total
Income After Tax
Equity in Affiliates
U.S. GAAP Adjustment
Net Income Before Extra. Items Total Extraordinary Items