semeinar ups
The Battle for Value, 2004
Fedex Corp vs United Parcel Service, Inc.
Fedex stock price reaction
Loss of profits on the Penney relationship
◦ less able to finance internally
UPS gains franchise value on future business with Penney
signal to investors of competitive disadvantage
Origins and strategic forces of the industry UPS was the dominant firm in the 1970’s
Deregulation (airlines, trucking)
Innovation in information and process technologies Inflation
Emphasis on customer service, quality, globalization, reengineering
Financial performance
Financial statements
Financial ratios
EPS and PE ratios
Total returns to investors
Economic Value Added
Financial statements
Strengths
◦ Reveals trends
◦ Comparison of absolute sizes
Weaknesses
◦
◦
◦
◦
◦
No assessment of efficiency
Biased by size differences
Book, not market values
Influenced by GAAP choices
Backward looking
Financial Ratios
Strengths
◦ Adjusts for size differences (relative measure)
◦ Provides comparative measures of efficiency and growth
Weaknesses
◦ Based on book, not market values
◦ Influenced by GAAP choices
◦ Iidentification of “norm” is problematic
EPS and P/E Ratios
Strengths
◦ Widely used and recognized
◦ Linked to market price of stock
Weaknesses
◦
◦
◦
◦
EPS influenced by GAAP choices
EPS not a cash flow
P/E difficult to interpret
Sensitive to choice of observation period
Total Returns to Investors
Strengths
◦ Cash flow based
◦ Market value based
◦ Permits benchmarking vs. other investments
Weaknesses
◦ Sensitive to choice of observation period
◦ Needs to be adjusted for risk
Economic Value Added (EVA)
Strengths
◦
◦
◦
◦
◦
Risk-adjusted
Permits benchmarking
Theoretically linked to market values
Logically appealing
Increasingly widely used
Weaknesses
◦ Influenced by GAAP choices
◦ Ignores latent
Fedex Corp vs United Parcel Service, Inc.
Fedex stock price reaction
Loss of profits on the Penney relationship
◦ less able to finance internally
UPS gains franchise value on future business with Penney
signal to investors of competitive disadvantage
Origins and strategic forces of the industry UPS was the dominant firm in the 1970’s
Deregulation (airlines, trucking)
Innovation in information and process technologies Inflation
Emphasis on customer service, quality, globalization, reengineering
Financial performance
Financial statements
Financial ratios
EPS and PE ratios
Total returns to investors
Economic Value Added
Financial statements
Strengths
◦ Reveals trends
◦ Comparison of absolute sizes
Weaknesses
◦
◦
◦
◦
◦
No assessment of efficiency
Biased by size differences
Book, not market values
Influenced by GAAP choices
Backward looking
Financial Ratios
Strengths
◦ Adjusts for size differences (relative measure)
◦ Provides comparative measures of efficiency and growth
Weaknesses
◦ Based on book, not market values
◦ Influenced by GAAP choices
◦ Iidentification of “norm” is problematic
EPS and P/E Ratios
Strengths
◦ Widely used and recognized
◦ Linked to market price of stock
Weaknesses
◦
◦
◦
◦
EPS influenced by GAAP choices
EPS not a cash flow
P/E difficult to interpret
Sensitive to choice of observation period
Total Returns to Investors
Strengths
◦ Cash flow based
◦ Market value based
◦ Permits benchmarking vs. other investments
Weaknesses
◦ Sensitive to choice of observation period
◦ Needs to be adjusted for risk
Economic Value Added (EVA)
Strengths
◦
◦
◦
◦
◦
Risk-adjusted
Permits benchmarking
Theoretically linked to market values
Logically appealing
Increasingly widely used
Weaknesses
◦ Influenced by GAAP choices
◦ Ignores latent