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    Week 2 - The Battle For Value, 2004 Questions

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    Lucas
    1. The document discusses competition in the overnight package delivery industry between FedEx and UPS. It notes that FedEx has had a competitive advantage in China since the 1990s, while UPS only entered the Chinese market in the 2000s. 2. FedEx's stock price increased 14% when talks of liberalized air cargo routes between the US and China began, which could be interpreted as market expectations of increased growth opportunities in China for FedEx. However, this level of growth may not be sustainable long-term. 3. An analysis of financial statements and ratios from the early 1990s shows that while FedEx saw better short-term growth, UPS has achieved higher and more efficient long-term growth and returns

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    Week 2 - The Battle For Value, 2004 Questions

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    Lucas
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    1. The document discusses competition in the overnight package delivery industry between FedEx and UPS. It notes that FedEx has had a competitive advantage in China since the 1990s, while UPS only entered the Chinese market in the 2000s. 2. FedEx's stock price increased 14% when talks of liberalized air cargo routes between the US and China began, which could be interpreted as market expectations of increased growth opportunities in China for FedEx. However, this level of growth may not be sustainable long-term. 3. An analysis of financial statements and ratios from the early 1990s shows that while FedEx saw better short-term growth, UPS has achieved higher and more efficient long-term growth and returns

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    Week 2_The Battle for Value, 2004 Questions

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    1. The document discusses competition in the overnight package delivery industry between FedEx and UPS. It notes that FedEx has had a competitive advantage in China since the 1990s, while UPS only entered the Chinese market in the 2000s. 2. FedEx's stock price increased 14% when talks of liberalized air cargo routes between the US and China began, which could be interpreted as market expectations of increased growth opportunities in China for FedEx. However, this level of growth may not be sustainable long-term. 3. An analysis of financial statements and ratios from the early 1990s shows that while FedEx saw better short-term growth, UPS has achieved higher and more efficient long-term growth and returns

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    150 views2 pages

    Week 2 - The Battle For Value, 2004 Questions

    Uploaded by

    Lucas
    1. The document discusses competition in the overnight package delivery industry between FedEx and UPS. It notes that FedEx has had a competitive advantage in China since the 1990s, while UPS only entered the Chinese market in the 2000s. 2. FedEx's stock price increased 14% when talks of liberalized air cargo routes between the US and China began, which could be interpreted as market expectations of increased growth opportunities in China for FedEx. However, this level of growth may not be sustainable long-term. 3. An analysis of financial statements and ratios from the early 1990s shows that while FedEx saw better short-term growth, UPS has achieved higher and more efficient long-term growth and returns

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Seminar Questions for The Battle for Value, 2004 Case

    1. Prepare to describe in class the competition in the overnight package delivery


    industry, and the strategies by which those two firms are meeting the competition.
    What are the enabling and inhibiting factors facing the two firms as they pursue
    their goals? Do you think that either firm can attain a sustainable competitive
    advantage in this business?
    Fedex in Chinese market from 1990s but UPS only from 2000s --› competitive advantage for
    Fedex
    UPS is the world market leader, large but slow, rests on laurels, switching costs thinks to high
    (inhibiting factors for growth)
    Fedex: dynamic growth, enabling factors: deregulation, IT innovation, globalization,
    transforming of industry
    BUT
    stockholders has more trust in UPS, that signs higher stock market value and higher growth of
    stock price
    (stock price = present value of future expected dividend or higher share price + risk managing
    ability of firm)
    I think, UPS has more chance to sustainable growth because of higher size of firm, and better
    shareholders expectation

    2. Why did FedEx’s stock price outstrip UPS’s during the initiation of talks over
    liberalized air cargo routes between the U.S. and China? Assuming a perfectly
    efficient stock market, how might one interpret a 14% increase in FedEx’s market
    value of equity?
    First because Fedex is since a long time ago in Chinese market, growth rapidly, less rigid and
    more innovative as UPS. It means better market expectations of customers, but also a bit
    worry: 14% rapid increase is not sustainable in long time perspective. To held advantage
    Fedex have to decrease costs, acquire lot of new customers and concentrate to keep price,
    quality, efficiency and customer satisfaction advance in Chinese segment of world package
    delivery market (China is one of the biggest segment of this market)

    3. How have FedEx and UPS performed since the early 1990s? Which firm is doing
    better? In class, prepare to discuss the insights you derived from the two firms’
    financial statements, financial ratios, stock-price performance, and economic profit
    (economic value added or EVA). Also, prepare to describe how EVA is estimated,
    and its strengths and weaknesses as a measure of performance.
    Financial statements & ratios show trends and good for comparison, but don’t look forward
    and uses book values (influenced by GAAP criteria) and not market values.
    EPS (equity per share) P/E price per earnings ratio, share price and dividend are more
    important for investors. There show also market valuation and cash flow-based processes.
    Fedex has better growth indicators based on financial statements and ratios and it produced a
    rapid growth in EPS after the opening of liberalized Chinese market. But in long perspective
    this growth is not sustainable.
    UPS indices were not so good this time but produced from beginnings a 35% EPS growth. It
    is 8-more higher as Fedex 7%. UPS earned 20% on equity with 8% assets growth rate. Fedex
    can earn only 10% earn on equity but it need also 10% growth of assets and it shows, that
    dynamic growth rate of Fedex is not sustainable.
    UPS uses also money of investors more efficiently: 1 invested dollar in 1992 means 5 dollar
    in 2003. in case of Fedex 1USD from 1992 was 7 USD in 2003. It is a same picture in
    opportunity costs (compared to S&P 500 investigation). UPS produced 5,5 Fedex produced
    3,7 multiplier.
    In corporate finance analysis EVA is also frequently used method. Economic value added
    (EVA) is an estimate of a firm's economic profit, or the value created in excess of the required
    return of the company's shareholders. Value is created when the return on the firm's economic
    capital employed exceeds the cost of that capital according to GAAP bookkeeping. This gives
    one of the methodological problems: GAAP is only one of methods to financial calculations
    and there is not only one perfect method. Other problem is that financial statements analyse
    only the past and don’t look forward an and ignore uncertain or probabilistic outcomes like
    discounted cash flow (DCF) method. Comparising EVA data UPS has significant better
    positions as Fedex.

    4. If you had to identify one of those companies as excellent, which company would
    you choose? On what basis did you make your decision? More generally, what is
    excellence in business?

    According to UPS-definition excellence means:


    “We remain constructively dissatisfied in our pursuit of excellence”
    UPS and Fedex I can compare to US and Japan in World War II. Fedex (like Japan) used the
    opportunities to acquiring market leadership in Chinese pocket delivery segment, because
    UPS (like) was rigid and slow. But in a long time perspective UPS is stable and has also
    reserves to win the competition. Long, persistent work and constructive dissatisfaction, I think
    there are the keys of economical excellence

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