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Fedex_vs_UPS - A LUE 2004 FedEx vs UPS To George Paul CFO...

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VALUE 2004: FedEx vs. UPS To: George Paul, CFO – MidFirst Bank Divya Krishnan Investment Analyst Date: October 5, 2009 Problem Statement To determine whether FedEx Corp. or United Parcel Service, Inc. (UPS) is creating more wealth for its shareholders Objective Maximize shareholders’ wealth and determine a specific performance appraisal measure for FedEx and UPS Analysis This case focuses on the two main competitors in the package delivery industry: Federal Express Corporation (FedEx) and United Parcel Service of America, Inc. Studying FedEx, UPS and their competitive relationship from the mid - 80's to the mid - 90's gives a good insight of the companies' and industry's future. The two companies have different strategic goals and are operating in the same industry but in different main markets: FedEx is working on "producing outstanding financial returns" and focuses on the overnight air market while UPS is looking for "earning reasonable profit" and its core business is the two-day ground delivery. The steps in my analysis of the case are as follows: 1. The enabling and inhibiting factors facing the two firms as they pursue their goal and whether either firm can sustain a competitive advantage in this business 2. Performance of FedEx and UPS since the mid-1980s by analyzing the firms’ financial statements, financial ratios, stock price performance, and economic profits (EVA)
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Assumptions This case does not require any explicit assumptions to be made as the authors themselves have made a few assumptions in their calculations provided in the case exhibits. For example, the authors used the CAPM approach to derive the cost of equity for both companies. It is not justified to use only the 2003 figures from the exhibits because it wouldn’t reflect the entire performance of the company. Also, UPS went public in 1999 so the information provided before this period might not reflect the true market value. I have therefore taken the average only for the period 1999 to 2003 in my analysis (after UPS went public). I have used the arithmetic mean for the profitability ratio analysis and CAGR (compounded annual growth rate) for growth analysis for both approaches.
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