Ups Case Answers

UPS CASE ANSWERS

Submitted by: Dhruv Jakasaniya

[pic 1]A1.        Annual Sales Growth:- It can be defined as percentage of increase in sales volume of      

a company compared to last year. It is usually calculated every year. Higher value represents rapid growth in Sales.

Return on Equity:- It can be defined as the profit a company can generate from each dollar of common stockholder’s equity. Higher value means more profitable the company is.

Operating Returns on Assets:- It can be defined as company’s operation income generated per dollar invested in total assets. Higher value means more operational income which is good.

Net Financial Leverage:- it can be defined as the extent to which the business is using the borrowed money. While companies with high financial leverage are considered to be at risk of bankruptcy, it is also beneficial in certain cases. For example: There are certain tax advantages with borrowing and it can add to increased shareholders’ return on investment.

Profit Margin:- It can be defined as the percentage of revenue left after eliminating all costs (money spent on making the product). Higher value means more profit per product sold or service provided.

After early 1990’s RPS, which was recently acquired by FedEx had gained market share and UPS had to match up with them. UPS chose to think about the long term benefits and chose to improve the interiors of the company this included a major technology upgrade, changes in pricing and changing, and a change in marketing strategy. The biggest marketing change was that company had a commercial saying ”We run the tightest ship in the shipping business”. By 1998 UPS had 32% of market share. By 1999 UPS Logistics group owned by UPS generated $1 billion in incremental revenue. UPS having the experience of almost 90 years had long vision about where technology was driving the industry and invested accordingly. All the numbers shown in the table above shows us the rapid growth of UPS to catch up with FedEx and then slowing down. Another reason for the difference in the numbers above is that one company used operating leases and another used capital leases. As we all know capital leases are compulsory to be shown in balance sheet and operating leases aren’t. UPS showed a great comeback, judging from the numbers. Net financial leverage of both firms dropped in 2000 and bounced back up. Profit margin of UPS showed steady growth in 1998,99 and started stabilizing while for FedEx it remained the same followed by a drop. The reason for this is the returns on investments and growth in annual sales made by UPS . Net Asset turnover for UPS remains almost same while FedEx’s undergoes a gradual fall. Return on Equity is directly represented by the firm’s wall street performance.