Battle for Value Fedex Vs Ups

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borrowing costs are notably higher than UPS because of the acquisitions, improvements in technology, better recognition in total quality management, and perpetual outbreaks in the international market. UPS has high borrowing costs as well, but since they are a corporate leader in the industry, it would figure they need the borrowing costs to perform efficiently. It’s also important to consider, FedEx had no dividends up until 2003: Either their higher borrowing costs shouldn’t have ever been an excuse because they chose to borrow from banks or they could’ve done better in handling their capital expenditures.

Back track for a moment, MVA and EVA may be used to recognize an economies of scale for reasons such as improved operation costs, which are beneficial to the performance of the company’s ability to sustain full capacity. As long as the company is maximizing their promise of investors capital while pushing out enough material for it not to be a negative outcome - their beta will lower which should attract more investors. MVA should stand out more to FedEx because of the amount of debt they have accumulated over the amount of years. They were unwilling to pay in dividends for a good portion of their lifespan up until 2003. By revamping the outcome of MVA and EVA; possibly by utilizing investors’ funds to decrease WACC or increase NOPAT, this will ultimately bring the spread of your cumulative MVA or EVA positive. Another way to improve on EVA or MVA is to open the pool of capital funds of either company for investment. Greater amounts of equity increase your WACC and give the company a chance of improving the overall amount of capital investment. By regulating the capital expenditures a company is allowed to employ, decreases the total amount of equity or debt and may be able to help in the long-run, but then restricts them from making more collective decisions.

EVA might be influenced by the amount of growth in a market by only using its revenue, thereby using it in forecasting its potential growth rate. This lacks consideration for their debt-to-equity ratio. In-turn, an EVA forecast would end up with a company like FedEx that is making money only to spend it on paying off debts particularly of working asset capital. MVA can easily be manipulated as well. It’s no surprise corporate buy-backs are the new trend among corporation stocks. In a corporate buy-back situation, a company purchases a large amount of shares to increase their share price and signal their value to the market. This is deceptive because often times, it’s an artificial MVA strategy. It’s been found current prices are technically still the same with small growth or in other terms, they’re merely inflated growth. Economic cycles affect the market whether it’s the beginning or end.

An example of ‘the psychology’ of investors is when the Chinese made their agreement with America to open up its markets. While both UPS and Fedex would grow and benefit from this, the people believed in the innovation and expansion of FedEx more than they believed in UPS. This is what caused FedEx stock to rise 5x higher than UPS’s stock price. Historically, Fedex hadn’t done well expanding into foreign markets as shown in their failures in the European market. On the other hand, UPS did very well when they expanded into that market. This belief in Fedex was based less on the actual ability and history of Fedex but more on the investor’s psychology.

The inclusion of these factors in bull markets, bear markets, weak efficient markets, and investor psychology highly affect calculations in EVA and MVA. Without these factors, stock prices, market value, and other calculations would be completely different because they wouldn’t include all the factors of the market. There are certain aspects of the market that can’t be measured with an equation or done with an analysis without factoring in the human factor. Neither people nor machines can 100% accurately determine what the future markets or future profits are going to be and that reason is because of the human factors that play into the market. People use their intuition, their hopes, and their feelings to determine if they think a company will continue growing or if they believe factors will make the company fail. This human factor, or investor psychology, is what creates bear markets and bull markets, although without taking these factors into consideration, we would only be able to determine the current value of a company and would not be able to predict the future value of a company. These future predictions are how companies plan ahead and prep for different types of markets and pre-determine their actions within their companies with their size of liquidity, debts, and employment. A company might be doing extremely well currently and their EVA is high because a lot of people think they are doing extremely well, but due to an unpredictable accident their company suddenly is bankrupt or like in the case of Enron, the MVA may be stated as being extremely high because of a weak market efficiency with Enron not releasing accurate data to the public and in actuality their company is bankrupt and failing at an alarming rate.

ACTIVITY ANALYSIS

Altogether, by comparing some of the most important ratios in the case study, this will tell us which company had a substantial impact in the industry. One thing to mention before we move forward is the analysis of beta for UPS; they issued an IPO in 1999 which was their first public offering of stock of class A and B stocks (2-for-1 split). Average days outstanding for FedEx compared to UPS is respectively constant. UPS on the other hand, goes from a 23.13 ratio to 51.60, from 1992 - 2003. Not only does that tell us that UPS didn’t have the capacity to turn over their sales as quickly as FedEx; they were losing business to their competitors. Working capital turnover for UPS in 1993 hit a high of 4,748.29 as opposed to -817.85 for FedEx. The turning point in the battle was in 1995 (additional air routes to China), which brought FedEx’s working capital turnover above UPS for the first time in years. UPS lost net capital in the process because of the acquisition of some European countries spending a whopping $1 billion in the process. This was a net loss not only because of the burden they faced with the costs of expanding, but also because of the $1 billion market in export-import’s in China.

LIQUIDATIONS ANALYSIS

In this analysis, we want to stress test a company by testing their ability to pay their debts in a short period of time, how liquid are they really? Concerning current ratio, cash ratio and cash from operations ratio. The current ratio demonstrates