Strong outlook in 1999.

Comparing ROE’s UPS and Fedex, UPS is doing better fedex. KSF: excellent execution, large
economies of scale, motivated, well-retained employees.

UPS went IPO in 1999 because of bull market condition, capitalise on its good performance and
facilitate M&A in the future. Not a major reason: Obtain cash to fund its growth. Advantage of stock
market: commonly traded share: able to use own shares to trade for other companies shares –
reduce leverage to facilitate M&A. UPS is cash rich.

Why IPO?

- Market timing
- Good performance
- Facilitate M&A in the future
Cons of IPO:
- Does not need cash
- Impact on employee ownership: diluted; motivation of employees
- Aggressive acquisition

How would you expect the rations to be different between UPS and FEDEX? – comparative adv?

UPS FEDEX
SALES GROWTH Lower since ground has Higher, since express business
experienced slower growth has grown faster
rates
NOPAT MARGIN Lower due to lower margin Higher due to higher margins
ground business on express
WC TO SALES Similar Similar
NET LT ASSETS TO SALES Lower since trucks used for Higher due to high plane use
ground less capital intensive for express
than planes
LEVERAGE Lower (AAA DEBT RATING) Higher (BBB debt rating)

But in actual, UPS have higher sales growth and NOPAT margin, net LT assets to sales and leverage
than UPS.

Adjust for off balance finance: Asset to sales: FEDEX higher than UPS

KEY ITEMS TO FORECAST: Sales growth and NOPAT margin – more volatile

Working capital turnover, net LT assets turnover, leverage – tends to

remain more stable.

BVA process:

1. Business and strategy analysis: growth, pro and cons

2. Accounting analysis: Adjust for non-recurring items, leases payment
3. Financial ratio analysis.