Financial analysis will also e used to show that UPS, at the time the case was written, is financially superior to Faded. After analyzing the factors above, the following recommendations will be made: Faded: Slow the growth of the company so that profitability is not being sacrificed. UPS: Account for variables that may affect the drivers and delivery time such as weather, traffic conditions, and package volume. This will lead to employees not worrying about being reprimanded is factors they cannot control cause them to be behind schedule. II.
Situational Analysis UPS was founded in 1 907 by Jim Casey was the largest package-delivery many in the world. At its inception, LIPS focused on department-store deliveries. In 1 929 UPS started an air-delivery service by putting packaged on commercial airline flights. By 1 975, UPS delivered to every address in the continental United States and began to expand into Canada. The following year, UPS began to service West Germany. UPS was founded on the concept of efficiency, which caused problems with the heavily unionized labor force within the company.
Up’s schedule for shipments does not account for variables that delivery truck drivers may run into such as: weather, traffic notations, and package volume. If any of these variable caused the slightest delay in delivery, the driver would be reprimanded. Until 1981, UPS had little competition in the package delivery business and they were dominating the market. That was until, Fred Smith came up with the idea for Faded from a term paper in his time at Yale University and he brought the company to global relevance.
Faded entered the market during a time when it was deregulated. This allowed for “Faded to purchase several Boeing 7275, which helped reduce its unit costs. Trucking industry deregulation also permitted Faded to establish an integrated regional trucking system that lowered unit costs, on short-haul trips, enabling the company to compete more effectively with PUPS (The Battle for Value, 2004: Faded Corp.. Vs.. United Parcel Service, Inc. ). Faded began to invest heavily is the “Air Express Market” and they also began to heavily invest in the Asian market.
In June of 2004, the United States and China reached a landmark air-transportation agreement that significantly increased the number of commercial cargo flights between the two countries. This new agreement presents plenty of opportunities for the woo package-delivery service giants. Faded currently has 11 flights a weeks and services 220 cities in China and has been experiencing a 50% per annum volume growth in business in China. Given with how well Faded is established in China, Faded is very well placed to take advantage of the liberalizing.
UPS on the other hand is less established in the Chinese market. UPS currently has 6 flights a week and services 200 cities in China and is less established on the ground, which could result in less opportunity in the liberalizing. However, with 100 new flights a week, it may come down to the more ancillary able company that will benefit from the new agreement with China. If this is the Case, UPS is better positioned to take advantage, as they are more able to finance the additions to the cargo fleet that will be needed. II.
Financial Statement Analysis 1. Current Ratio UPS is significantly more liquid that Faded as shown by the current ratio – see Appendix 1. 2. Net Profit Margin Percentage UPS is more profitable than Faded on every profitability measure including net profit margin as shown in Appendix 2 3. Stock-Price Performance Both UPS and Faded have performed well when it comes to stock reference – see Appendix 3. From Exhibit 8 in the case we can see that from 1 993 to 2003, UPS has given stock holders better returns than Faded (551 % to 373%).
However, both have performed much better than the S&P 500, which had a return of 155% during that time period 4 Economic Value Added As can be seen from Appendix 4, Faded Destroyed Economic Value from 1993 to 2002 created $1 70 millions in value in 2003. This resulted in a cumulative Economic Value loss of $1,991 between 1993 and 2003. UPS also destroyed Economic Value between 1 993 an 1996. However, they created Economic Value between 1 997 and 2003. . Market Value Added As showing in Appendix 5, UPS has been much ore successful is creating market value than Faded. This has been especially true since the strike that UPS underwent in 1997.
IV. Recommendation and Implementation Faded: Slow the growth of the company in order to not sacrifice profitability. At the current time profitability is being sacrificed in order to scale the company in order to increase their market share over LIPS. However, all Of their financial ratios are below UPS due to this fact. In order to improve their financial ratios, slowing their expansion would be a good idea. They would be aging on less debt, not taking the chance of one day over extending themselves, and on they will look better to investors as a company they would want to invest in.
SIPS: UPS: Account for variables that may affect the drivers and delivery time such as weather, traffic conditions, and package volume. This will lead to employees not worrying about being reprimanded is factors they cannot control cause them to be behind schedule. This led to low employee morale and resulted in a strike. A company can only be as successful as the employees make it and if the employees morale is low, the company cannot continue to grow and exceed expectations.