Ratio Analysis (Ups vs Fdx)
Abstract
This analysis investigates the management policies of the two primary competitors of the Air Delivery & Freight Services industry. I use ratio analysis to peek under the covers of profitability to understand how management, investment and financial management activities impact the overall performance of FedEx and UPS and study how the ratios change over time for FedEx.
Ratio Analysis
Two competitors, FedEx and UPS, dominate the Air Delivery & Freight Services industry in the United States. FedEx is the smaller of the two with a market cap almost a third of the frontrunner UPS. UPS enjoys a higher Price to Earnings while providing a lower Earnings Per Share than FedEx. How does a firm with higher earnings per share trade at a lower price per earnings than their primary competitor? It must have something to do with risk.
Compound Annual Growth
Looking at Table: Compound Annual Growth, gives us a warm and fuzzy feeling about FedEx. Their sales are growing faster, their net income is growing more than twice as fast as UPS both raw and adjusted and their dividend payment compound annual growth is through the roof. There are a couple caveats to this glowing review though. First, FedEx has negative Free Cash Flows available for equity because of their aggressive debt repayment in 2005. If we remove this one time anomaly of negative free cash flows by only looking through 2004, their free cash flow for equity looks quite nice with a CAGR of 292.79% compared to UPS's 13.37% CAGR in free cash flows available for equity. This is one of the downsides to using compound annual growth rates. Because it only compares the beginning and ending balances and assumes stable trends, it does not take volatility between the two balances into account. Furthermore, the dividend payments cannot be used in CAGR because FedEx did not issue dividends until 2002. To account for this, I used $1 for the dividend payments in 2001. This gives a 203.65% CAGR which looks pretty good until
This analysis investigates the management policies of the two primary competitors of the Air Delivery & Freight Services industry. I use ratio analysis to peek under the covers of profitability to understand how management, investment and financial management activities impact the overall performance of FedEx and UPS and study how the ratios change over time for FedEx.
Ratio Analysis
Two competitors, FedEx and UPS, dominate the Air Delivery & Freight Services industry in the United States. FedEx is the smaller of the two with a market cap almost a third of the frontrunner UPS. UPS enjoys a higher Price to Earnings while providing a lower Earnings Per Share than FedEx. How does a firm with higher earnings per share trade at a lower price per earnings than their primary competitor? It must have something to do with risk.
Compound Annual Growth
Looking at Table: Compound Annual Growth, gives us a warm and fuzzy feeling about FedEx. Their sales are growing faster, their net income is growing more than twice as fast as UPS both raw and adjusted and their dividend payment compound annual growth is through the roof. There are a couple caveats to this glowing review though. First, FedEx has negative Free Cash Flows available for equity because of their aggressive debt repayment in 2005. If we remove this one time anomaly of negative free cash flows by only looking through 2004, their free cash flow for equity looks quite nice with a CAGR of 292.79% compared to UPS's 13.37% CAGR in free cash flows available for equity. This is one of the downsides to using compound annual growth rates. Because it only compares the beginning and ending balances and assumes stable trends, it does not take volatility between the two balances into account. Furthermore, the dividend payments cannot be used in CAGR because FedEx did not issue dividends until 2002. To account for this, I used $1 for the dividend payments in 2001. This gives a 203.65% CAGR which looks pretty good until