UPS Section 1 Company\'s Services

¶ … UPS

Section 1 Company's Services Analysis

Section-2 Financial Ratio Analysis

Section-3 Costing

Section-4 Future Projects Analysis

Section-5 Conclusion & Recommendations

Financial statements are the end products of an organization on which the investors, policy makers, creditors and other relevant people emphasize comprehensively. The main prospective of an organization is to increase the level of surplus by institutionalizing different revenue provisions. Organizations have to take numerous actions or decisions to keep the cycle of earning growing. Organizations usually make forecasted financial statements and take economic decisions based on these pro-forma statements (Anthony & Cornyn, 1982).

Organizations take numerous operational and strategic decisions in to account to increase the level of its earning. Financial and business decisions are always difficult for the organizations to take because of its complicated and vary nature. There is far more difference between financial, investment and strategic analysis of an organization (Alexander, 2007). This particular assignment is also pertains to analysis but with different angles. This assignment has been divided into five different sections. The first section is all about the goods and services along with the market share of the chosen company, followed by the financial analysis of the company in the second section. Section 3rd and 4th define the costing and project evaluation stance of the company respectively. In the end the section 5 will conclude the reading. The choice of the company is important for this particular piece of work. The company which has been chosen for this assignment is United Parcel Services. The assignment is quite complicated in nature that is why comprehensive study has been required to accomplish this particular goal. The next entire section will cover the section no. 1 of this report which defines the company chosen, along with its products and services, market share, geographic and major competitors. Let's now start the first section of the report,

Section 1 Company's Services Analysis

The company which has been chosen for the analysis is Universal Parcel Services (UPS). In this section the products and services of the company has been jotted down along with the market share and major competitors of the company (Archand, 2003).

United Parcel Services Inc. (UPS) is a package delivery company with its headquartering located in Georgia, Unites States. According to the website of the company, UPS delivers more than 15 million packages in just one day to around 6 million customers worldwide. The company has its active operations in more than 200 countries worldwide. The best product of the company is the brown trucks which are called as package cars, very famous in the international market. .

The primary duty of the UPS is to deliver the package to the concerned person in just a matter of time. The work of the UPS and other parcel companies is just like the intermediaries who become the reason between the meetings of two people. The company has recently expanded its operations and portfolios in some other countries as well to be more worthwhile. The company's operations have been divided into three different and dominating segments which predominantly are U.S. Domestic Package Operations, International Package Operation and Supply Chain operations. The company's operations are in a very good hand which not only strives hard for its long-term success but also facilitated its employees wonderfully well. The same can be gauge from this stance that the company had only one nation strike which occurred in the year 1997 in worldwide. The company has a large and sophisticated portfolio comprises on about 400,600 employees worldwide. Out of these figure, 358,400 employees working in the United States (U.S.) while rest of the workforce dispersed in all over the world. The total assets of the company amounted to U.S.$33.597 billion while total revenue of U.S.$49.545 billion in the year 2010. The company was able to earn net income (NI) of 3.488 billion in the same year. The company's shares are actively trading in the New York Stock Exchange (NYSE) with the name of UPS. The share of the company is currently trading at a rate of U.S.$74.27 and the share of the company is very famous among the shareholders. The shareholders of the company mostly are individuals who enjoyed a consistent flow of dividend income from the company. Analysis reveals that the large number of investor likes to invest in the stocks of the company from worldwide. The biggest competitors of the company are, United States Postal Services (USPS) and FedEx. All of these companies are marginally up and down from each other. Let's now start the second section of the report which is about the financial analysis.

Section-2 Financial Ratio Analysis

Financial analysis is also referred to as Financial Statement Analysis (FSA). FSA is an assessment of the profitability, viability and the stability of an organization (David & Hussey, 2001). The usage of FSA is of manifold, as users of different sectors analyze the financial statement from different angles. The main goal of FSA is to analyze and then interpret the financial health of the organization in an understandable manner. Financial ratios computation is an activity frequently used under the umbrella of financial analysis. There are a number of categorize of the financial ratios like profitability ratios, solvency ratios, liquidity ratios and stability ratios. This section of the report is very important. In this section, ratio analysis and different categories of ratios have been analyzed in this section.

Profitability Ratios

Profitability ratios are the most widely used ratios to assess the financial capability of an organization. There are number of ratios which have been used for this specific purpose. The ratios which come under this umbrella and have been used in this paper are Net Profit Margin (NPM) and Gross Profit Margin (David, C & Johnson 2005). To do a comprehensive analysis, data of five fiscal years have been selected,

Gross Profit Margin (GPM)

GPM is one of the widely used measures in the literature of analysis. This particular ratio apprises the investor that how much the company is able to earn after subtracting the cost of good sold. High amount of GPM is always desirable for the companies. The computed GPM table along with the chart is mentioned below,

UPS GPM

Years

Total Sales

Gross Profit

GPM

in million U.S.$

in million U.S.$

2006

47,547

13,820

3.44

2007

49,692

14,014

3.55

2008

51,486

13,545

3.80

2009

45,297

10,838

4.18

2010

49,545

12,478

3.97

Mean GPM

3.787

From the table and graph, it can be seen that the GPM of the company is in a positive node. The GPM of the company increased for 4 consecutive years in 2006 to 2009. The GPM of the company was 3.44% increased by 0.11% in a year later and then again increased by 0.25% and 0.38% in the year 2008 and 2009 respectively. The GPM of the company decreased by 21 basis points in the year 2010 as compared to the same period of last year. UPS is among those companies which had least effected from the current economic downturn because of its large, sophisticated and diversified portfolio. The mean or average GPM of the company is 3.78% which means that the company is able to earn approx 4$ by investing 100$ without subtracting other expenses. This GPM is not very good but can be acceptable because it comes in the positive node. The net earnings are the important indicators for the organizations; let's now compute the Net Profit Margin (NPM) of the company.

Net Profit Margin (NPM) Analysis

A ratio of profitability calculated as net return alienated by revenues, or net profits separated by sales (David, Peter & Wyn, 2003). It measures how much out of every buck of sales a group actually keeps in earnings. NPM is one of the most widely used ratios in the finance literature. Profit margin is very effective when comparing companies in analogous industries. An advanced profit margin shows more profitable guests that has better monitor over its costs compared to its competitors. The NPM of the company has been mentioned below along with the chart.

UPS NPM

Years

Total Sales

Net Profit

NPM

in million U.S.$

in million U.S.$

2006

47,547

4,202

8.84

2007

49,692

14,014

28.20

2008

51,486

13,545

26.31

2009

45,297

10,838

23.93

2010

49,545

12,478

25.19

Mean NPM

22.492

From the table and graph, it can be said that the company is in a good financial health. The NPM of the company was very low for year (FY) 2006 manifesting a figure of 8.84% increased substantially by 19.36% in the year 2007 as compared to the same period of last year. That high increment was merely due to the increment in the sales figures. After the year 2007, the NPM of the company decreased for two consecutive years by 189 and 238 basis points FY 2008 and 2009 respectively merely due to the current economic crisis. Due to the resiliency power, the company again achieved its previous momentum of earning in the year 2010 and increased by 1.26%. The average NPM of the company is 22.49% which shows that the company is able to earn $22 by investing $100 which is certainly a sign of financial healthy company. After analyzing the profitability ratio, let's now examine the efficiency ratios of the company.

Efficiency Ratio Analysis

Efficiency ratios (ER) are the ratios which used to assess the effectiveness of a company. The specific rations come under the ambit of ER are Return on Asset (ROA) and Return on Equity (ROE) (Daniel, 1992). Let's examine both the ratios.

Return on Assets (ROA) Analysis

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how helpful management is at using its assets to produce profit (Groves & Edward, 2004). Calculated by dividing a company's annual wages by its total assets, ROA is displayed as a percentage. The computed ROA figure and its graph is mentioned below,

UPS ROA

Years

Total Assets

Net Profit

ROA

in million U.S.$

in million U.S.$

2006

33,210

4,202

12.65

2007

39,042

14,014

35.89

2008

31,879

13,545

42.49

2009

31,883

10,838

33.99

2010

33,597

12,478

37.14

Mean ROA

32.434

ROA apprise an investor that how much the assets of a company are fruitful for it. It is one of the most authentic and widely used measures to assess the efficiency of an organization in generating profit from its assets. High ROA figure is always positive for the organizations. The ROA of UPS was 12.65% in the year 2006 and then increased by 23.24% in the year 2007 because of the extraordinary growth of the Net Income (NI). The Net Income of the company increased by 233% in the year. The ROA of the company increased by 659 basis points in the year 2008 as compared to the figure of the same period of last year. The year 2009 was the toughest year for the company, according to the management & discussion (M&D) section of the annual report of the company. Current economic downturn decreased the level of ROA of the company by 8.50% in the year 2009 but then increased by 3.15% in the year later. The mean ROA of UPS is 32.43% which means that the company is able to generate 32$ of revenue from each of its assets, which shows that the operating assets of the company are not only productive but cost efficient as well.

Return on Equity Analysis

We can evaluate a company's fiscal stability ad vigor by the help of ROE ratio. The intent of this ratio is to obtain an idea about the yield or profit a crowd gains on its justness, which they put while startup the industry. Shareholders are much more worried with the profitability of the visitors and simply stress on ROE. The computed ROE of the company along with the graph is mentioned below,

UPS ROE

Years

Total Equity

Net Profit

ROE

in million U.S.$

in million U.S.$

2006

15,482

4,202

27.14

2007

12,183

14,014

2008

6,780

13,545

2009

7,630

10,838

2010

7,979

12,478

Mean ROE

The result computed through the ROE is almost identical of ROA. The ROE of the company was 27.14% in the year 2006 which is also very good for a company. Two consecutive years increment had been envisaged by 115.03% and199.78% for year 2007 and 2008 respectively. Due to the current economic downturn the ROE of the company decreased by 57.73% in the year 2009 as compared to the ROE of last year. The ROE of the company increased by 14.34% in the year 2010 which makes the mean ROE of 128.076% which clearly shows that the shares of the company are very famous among the shareholders. The next heading totally pertains to the liquidity ratio analysis.

Liquidity Ratios Analysis

Liquid means profitable in the term of finance. Liquid is that thing which can be converted into cash instantly (Martin & Fernando, 2002). There are two ratios which come under the ambit of liquidity ratios. There are two types of liquidity short-term liquidity and long-term liquidity. Short-term liquidity usually analyze with the Current Ratio (CR) while long-term liquidity can be judge from debt to equity ratio.

Current Ratio Analysis

Current ratio is the most important ratio used to analyze the overall management of the company. It will apprise the investor and investors regarding the propensity of the organization to meet its short-term financial obligations. A current ratio above 1 will be desirable for the companies to achieve. Below mentioned is the computed result along with the chart of CR.

UPS CR

Years

Current Assets

Current Liabilities

CR

in million U.S.$

in million U.S.$

2006

9,377

6,719

1.40

2007

11,760

9,840

1.20

2008

8,845

7,817

1.13

2009

9,275

6,239

1.49

2010

11,569

5,902

1.96

Mean CR

1.434

The CR is the widely used ratio to check the short-term liquidity of a company. UPS has a CR of more than 1 throughout the analytical period which is a clear indication that the company has been effectively complying with the short-term obligations and never sold its inventories to meet with its financial promises. After the year 2008, the CR of the company is increasing which is indeed a positive sign for the organization. The average CR of the company is 1.4 which identifying the stance that the company has always met with its short-term obligations and thus it is highly liquid especially in the short-term.

Long-Term Liquidity: Debt to Equity Analysis

Debt to Equity (D/E) is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity (Pamela & Peterson, 1999). It is one of the most widely used ratios especially by the banks and creditors to evaluate the credit worthiness of the counter person. The computation of D/E ratio along with its chart is mentioned below,

UPS D/E

Years

Total Debt

Total Equity

D/E

in million U.S.$

in million U.S.$

2006

17,728

15,482

1.15

2007

26,859

12,183

2.20

2008

25,099

6,780

3.70

2009

24,253

7,630

3.18

2010

25,618

7,979

3.21

Mean D/E

2.688

The D/E ratio is another very important measure to assess the level of debt and equity in the company's operations. The D/E of the company is in a reasonable range which shows that the company is effectively managing its debt and equities. AD/E of more than 1 indicates that the company often uses debt to meet with their financial promises. The average D/E of the company is little bit alarming, so the company has to decrease this particular ratio by decreasing the usage of debt from its operations. The next ratio which has been analyzed is from the standpoint of the investors.

Gearing Ratio (GR)

Gearing arrangement is like an advantage to analysis the banking advantage of the firm. Gearing arrangement demonstrates the bulk that how abundant close activities is been adjourned by firm's claimed disinterestedness adjoin the creditor fund (Nancy, 1992). A aggregation which has a college cardinal of gearing arrangement is added chancy and seems added accessible as compared to the aggregation with a baby cardinal of ratios. The computed result is mentioned below,

UPS G.R

Years

EBIT

Interest

GR

in million U.S.$

in million U.S.$

2006

6,510

11.05

2007

3.45

2008

5,015

8.37

2009

3,366

10.33

2010

5,523

10.42

Mean GR

8.724

The GR shows the amount of risk while investing in the company's stocks. The GR of the company was very high in the year 2006, but after that the company did an excellent job to drag it in a single figure. The average GR of UPS is 8.72% which is reasonable for a multinational company. It is a clear indication of the attraction of the investors towards this particular stock. In order to be more competitive and attractive, the organization must work hard to decrease this particular ratio or to maintain it in a single figure for the future likewise it is currently doing. Let's now do the 3rd section of the report.

Section-3 Costing

Costing is the most influential and underpinning element for the organizations. Companies have to assure that the costs of the company will not surpass from the revenues. The concept underlies in Economics is very important for the companies that as far as the Marginal Revenue Curve is above the marginal cost, the company is actually in a position to increase the revenue. There are two categorizes of the total costs (Zebang 2001). One is called the Variable cost and Fixed Cost. A company which does not meet with the variable cost can sustain but a company which does not meet with the fixed cost can not sustain in the competitive environment.

According to the analysis, UPS has used the standard costing measures to record the cost of good sold of the company. The cost incurred in buying raw materials is the only cost to recognize for the company. The company varies its cost recognition with the amount and quantity of the packages distributed. The fixed cost which is carrying cost and other cost used to bring the raw material at the manufacturing unit is always a concern for the organizations.

From last few years, UPS faced numerous problems regarding managing the cost of doing business. Its operations in the developing countries like India and Pakistan does not give the best yield to them. Now the company has two options, whether to stop the operations within these countries or utilize a well structured, sophisticated and well maintained costing system called standard costing system within its premises. The biggest advantage of using the standard costing and variance analysis is that the company will certainly become economically efficient. Standard costing enables an organization to spend the costs as per the requirement. There are things like variances analysis and standard measure analysis which will certainly opens the door for UPS in a new and economic efficient environment. All of such costing measures have been used by the big multinational companies worldwide. The next section is about the project evaluation and the method using by the company to do the same, let's start it.