Financial Analysis of UPS

Part I: Company Profile 

The United Parcel Service (UPS) Inc. is multinational company operating as courier service for package delivery and supply chain management. The firm is headquarters in Sandy Springs, Georgia, but has multiple divisions and subsidiaries across the country. Similar to its competitor FedEx, the UPS brand name is used across all of its divisions including the freight-based trucking operation, cargo airlines, and retail-based packing and shipping centers. The company was founded in August 1907 by James Casey along with Claude Ryan as American Messenger Company in Seattle, Washington. The majority of deliveries at the time were done on foot while bicycles were used only for longer distances. The primary focus was on package delivery while only special delivery mail service was offered for its largest client the United States Postal Service. It was only until 1913 that the firm acquired a Model T Ford as its first vehicle for the growing business. The organization would merge with one of its competitors Evert McCabe to form Merchants Parcel Delivery. Charlie Soderstrom would join in 1916 bringing in even more delivery vehicles to the company. 

The firm experienced its first expansion outside of Seattle in 1919 as it conducted its business in Oakland, California and subsequently changed its name to United Parcel Service. The name change was a critical part of the business’ transformation as it reminded workers that their operations would remain “United” and “Parcel” was its specific business type that was offered as part of its “Service” (Albrecht, Holland, Malagueño, Dolan, & Tzafrir, 2015). Through the acquisition of Common Carrier service in 1922, UPS became one of the only firms in the country to offer the service. However, this was only limited in Los Angeles, but would expand to 125 miles outside of the city by 1927. The organization has demonstrated significant changes that have been integral to its continued growth and development of the services it offers including conveyor belt system in its handling of packages, consolidated delivery services, and expansion of its business into New York City among other major cities in the East and Midwest. 

UPS initially launched air service delivery in 1929 through private airlines but was ended due to lack of volume during the Great Depression. However, it resumed in 1953 through UPS Blue Label Air with a two-day service to major cities along the East and West Coasts. The firm would move its headquarters to Greenwich, Connecticut in 1975 from where it offered services all 48 contiguous states making it the first organization of its kind to serve all addresses in the continental US. International services were first served in Canada within the same year before establishing operations Germany. It would then launch Net Day Air Service in 1985 that served all states including Puerto Rico. The UPS Airlines was launched shortly after in 1988 following authorization from the Federal Aviation Administration. By 1993 UPS was making daily deliveries of 11.5 million packages and documents and in November 1999 it became a public company. 

Due to the large volume of UPS customers and the extensive development taking place in the country, the organization identified the need to incorporate technology to ensure quality service is assured. The Delivery Information Acquisition Device (DIAD) was introduced in the early 1990s to record and upload delivery information to its networks once they packages were picked up by drivers (Albrecht, Holland, Malagueño, Dolan, & Tzafrir, 2015). By 1992 UPS could track all its ground shipments electronically and by 1994 customers had access to a platform that could help them track their products. Further innovation and expansion was evident during this decade as the UPS Logistics Group was launched in 1995 to provide global supply chain management solutions and consulting services for its client base. The significant history of the company shows its systematic process as it laid a strong foundation to ensure high level of performance and competition to organizations in the domestic and international service delivery industry. 

Part II: Table of Ratios 

Part III: A written analysis of the ratio table 

Trend Analysis 

In the above figures, it is evident that UPS has been experiencing a stable performance despite fluctuations over the past four years. The organization was identified as one of the most admired companied in the world. This ranking is likely to have been influenced by the firm’s quest to continuously improve its operations and the quality of service offered to its customers (Zack, 2012). From the beginning, UPS kept its focus on providing customers with courtesy, reliability, round-the-clock service, and low rates. These high standards set by Jim Casey helped the company become a global delivery giant. In the past few years, it has become evident that the organization has continued to set its place as a globally recognized company in the delivery industry (Bruner, & Bulkley, 2017). UPS has been able to acquire abnormally high returns on equity. In this case, the strong growth history and its reputation as a reliable provider of the service has ensured that the customers can continue to purchase their various offerings. The desire to incorporate various levels of technology in the operations of the company has been a defining factor in its ability to generate revenue. Through the use of ocean, air, ground, and electronic delivery services the firm has been able to expand its operations in over 200 countries and territories across the globe. The diversified business segments offer a wide array of opportunities for generating income for the company. 

Liquidity Ratios 

The liquidity ratios are an important aspect of reviewing the financial performance of the company. United Parcel Service demonstrates liquidity ratios that can help meet their near-term cash obligations. The current ratio identifies the ability of the firm to pay for both short-term and long-term obligations (Zack, 2012). Therefore, the firm takes into consideration the total assets relative to the total liabilities of the firm. The current ratio has been fluctuation over the past few years a clear demonstration of the lack of stability in the organization’s performance. There has been as steady decline from end of 2014 to the end of 2016, but a slight improvement was evident in the year 2017 (Bruner, Lipson, & Carr, 2017). This significant increase has not yet reached the heights attained in 2015 and 2014. The quick ratio is another significant measure of identifying the liquidity of the company whereby consideration is on the cash, marketable securities, and accounts receivable relative to the current liabilities. A similar trend is evident in the quick ratio as was seen in the current ratios. However, it is clear that organization has experienced significant deterioration as it failed to achieve its expected obligations (Shin, Ellinger, Nolan, DeCoster, & Lane, 2016). Cash ratios have also been on a decline over the past four years with only a slight increase between 2014 and 2015. 

Profitability Ratios 

The organization has demonstrated significant levels of profitability despite deterioration of revenues earned over the past few years. The gross profit margin identifies the percentage revenue available to help cover operation costs and other expenditures. However, during the last two years, the organization experienced a steady decline in this ratio a clear indicator of the lack of funds to cover expenditures. For instance, 75% gross profit margin shows that for every dollar made, the firm has 75 cents left for use in covering basic operating costs for the previous 12 months (Yoo, & Baek, 2017). The United Parcel Service Inc.'s operating profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level. United Parcel Service Inc.'s net profit margin deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level (Yoo, & Baek, 2017). United Parcel Service Inc.'s ROE improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017 not reaching 2015 level. United Parcel Service Inc.'s ROA declined from 2015 to 2016, but then increased significantly from 2016 to 2017 but failed to attain the 2015 level. 

Part IV: Common Size Income Statements 

Part V: A written analysis of the common size statements 

The organization has demonstrated a significant decline in the earnings although it continues to lead in the industry over the past few years. The above chart shows UPS has experienced a decrease in both revenue and profit for the past three years (Yoo, & Baek, 2017). The United Parcel Service Inc.'s operating profit deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level. This is an indicator of the struggles experienced in the industry as many organizations are entering or offering delivery services in the retail industry. 

Part VI: Overall Financial Health of UPS 

Debt-to-equity ratio standards differ between industries, as some some are more capital-intensive than others, meaning they need more capital to carry out core operations. A ratio below 40% for large-cap stocks is considered as financially healthy, as a rule of thumb. In the case of UPS, the debt-to-equity ratio is over 100%, which indicates that the company is holding a high level of debt relative to its net worth (Zack, 2012). In the event of financial turmoil, the company may experience difficulty meeting interest and other debt obligations. A simple way to determine whether the company has put debt into good use is to look at its operating cash flow against its debt obligation. This is also a test for whether UPS has the ability to repay its debt with cash from its business, which is less of a concern for large companies. Last year, UPS’s operating cash flow was 0.29x its current debt (Yoo, & Baek, 2017). A ratio of over a 0.25x is a positive sign and shows that UPS is generating ample cash from its core business, which should increase its potential to pay back near-term debt. With total debt exceeding equities, United Parcel Service is considered a highly levered company. This is common amongst large-cap companies because debt can often be a less expensive alternative to equity due to tax deductibility of interest payments. 

References 

Albrecht, C., Holland, D., Malagueño, R., Dolan, S., & Tzafrir, S. (2015). The role of power in financial statement fraud schemes. Journal of Business Ethics, 131 (4), 803-813. 

Bruner, R. F., & Bulkley, D., (2017). The Battle for Value: Federal Express Corporation vs. United Parcel Service of America, Inc. (Abridged). Darden Business Publishing Cases , 1-21. 

Bruner, R. F., Lipson, M. L., & Carr, S., (2017). FedEx Corp. versus United Parcel Service of America, Inc.: Who Will Deliver Returns from China? Darden Business Publishing Cases , 1-14. 

Shin, H., Ellinger, A. E., Nolan, H. H., DeCoster, T. D., & Lane, F. (2016). An assessment of the association between renewable energy utilization and firm financial performance. Journal of Business Ethics , 1-18. 

Yoo, C. Y., & Baek, T. H. (2017). Assessing the Financial Value of Digital Advertising. Digital Advertising: Theory and Research , 222. 

Zack, G. M. (2012). Financial statement fraud: strategies for detection and investigation (Vol. 632) . John Wiley & Sons.