Return on Assets (ROA) Analysis
An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how helpful management is at using its assets to produce profit (Groves & Edward, 2004). Calculated by dividing a company's annual wages by its total assets, ROA is displayed as a percentage. The computed ROA figure and its graph is mentioned below,
UPS ROA
Years
Total Assets
Net Profit
ROA
in million U.S.$
in million U.S.$
2006
33,210
4,202
12.65
2007
39,042
14,014
35.89
2008
31,879
13,545
42.49
2009
31,883
10,838
33.99
2010
33,597
12,478
37.14
Mean ROA
32.434
ROA apprise an investor that how much the assets of a company are fruitful for it. It is one of the most authentic and widely used measures to assess the efficiency of an organization in generating profit from its assets. High ROA figure is always positive for the organizations. The ROA of UPS was 12.65% in the year 2006 and then increased by 23.24% in the year 2007 because of the extraordinary growth of the Net Income (NI). The Net Income of the company increased by 233% in the year. The ROA of the company increased by 659 basis points in the year 2008 as compared to the figure of the same period of last year. The year 2009 was the toughest year for the company, according to the management & discussion (M&D) section of the annual report of the company. Current economic downturn decreased the level of ROA of the company by 8.50% in the year 2009 but then increased by 3.15% in the year later. The mean ROA of UPS is 32.43% which means that the company is able to generate 32$ of revenue from each of its assets, which shows that the operating assets of the company are not only productive but cost efficient as well.
Return on Equity Analysis
We can evaluate a company's fiscal stability ad vigor by the help of ROE ratio. The intent of this ratio is to obtain an idea about the yield or profit a crowd gains on its justness, which they put while startup the industry. Shareholders are much more worried with the profitability of the visitors and simply stress on ROE. The computed ROE of the company along with the graph is mentioned below,
UPS ROE
Years
Total Equity
Net Profit
ROE
in million U.S.$
in million U.S.$
2006
15,482
4,202
27.14
2007
12,183
14,014
2008
6,780
13,545
2009
7,630
10,838
2010
7,979
12,478
Mean ROE
The result computed through the ROE is almost identical of ROA. The ROE of the company was 27.14% in the year 2006 which is also very good for a company. Two consecutive years increment had been envisaged by 115.03% and199.78% for year 2007 and 2008 respectively. Due to the current economic downturn the ROE of the company decreased by 57.73% in the year 2009 as compared to the ROE of last year. The ROE of the company increased by 14.34% in the year 2010 which makes the mean ROE of 128.076% which clearly shows that the shares of the company are very famous among the shareholders. The next heading totally pertains to the liquidity ratio analysis.
Liquidity Ratios Analysis
Liquid means profitable in the term of finance. Liquid is that thing which can be converted into cash instantly (Martin & Fernando, 2002). There are two ratios which come under the ambit of liquidity ratios. There are two types of liquidity short-term liquidity and long-term liquidity. Short-term liquidity usually analyze with the Current Ratio (CR) while long-term liquidity can be judge from debt to equity ratio.
Current Ratio Analysis
Current ratio is the most important ratio used to analyze the overall management of the company. It will apprise the investor and investors regarding the propensity of the organization to meet its short-term financial obligations. A current ratio above 1 will be desirable for the companies to achieve. Below mentioned is the computed result along with the chart of CR.
UPS CR
Years
Current Assets
Current Liabilities
CR
in million U.S.$
in million U.S.$
2006
9,377
6,719
1.40
2007
11,760
9,840
1.20
2008
8,845
7,817
1.13
2009
9,275
6,239
1.49
2010
11,569
5,902
1.96
Mean CR
1.434
The CR is the widely used ratio to check the short-term liquidity of a company. UPS has a CR of more than 1 throughout the analytical period which is a clear indication that the company has been effectively complying with the short-term obligations and never sold its inventories to meet with its financial promises. After the year 2008, the CR of the company is increasing which is indeed a positive sign for the organization. The average CR of the company is 1.4 which identifying the stance that the company has always met with its short-term obligations and thus it is highly liquid especially in the short-term.
It is one of the most widely used ratios especially by the banks and creditors to evaluate the credit worthiness of the counter person. The computation of D/E ratio along with its chart is mentioned below,
UPS D/E
Years
Total Debt
Total Equity
D/E
in million U.S.$
in million U.S.$
2006
17,728
15,482
1.15
2007
26,859
12,183
2.20
2008
25,099
6,780
3.70
2009
24,253
7,630
3.18
2010
25,618
7,979
3.21
Mean D/E
2.688
The D/E ratio is another very important measure to assess the level of debt and equity in the company's operations. The D/E of the company is in a reasonable range which shows that the company is effectively managing its debt and equities. AD/E of more than 1 indicates that the company often uses debt to meet with their financial promises. The average D/E of the company is little bit alarming, so the company has to decrease this particular ratio by decreasing the usage of debt from its operations. The next ratio which has been analyzed is from the standpoint of the investors.
Gearing Ratio (GR)
Gearing arrangement is like an advantage to analysis the banking advantage of the firm. Gearing arrangement demonstrates the bulk that how abundant close activities is been adjourned by firm's claimed disinterestedness adjoin the creditor fund (Nancy, 1992). A aggregation which has a college cardinal of gearing arrangement is added chancy and seems added accessible as compared to the aggregation with a baby cardinal of ratios. The computed result is mentioned below,
UPS G.R
Years
EBIT
Interest
GR
in million U.S.$
in million U.S.$
2006
6,510
11.05
2007
3.45
2008
5,015
8.37
2009
3,366
10.33
2010
5,523
10.42
Mean GR
8.724
The GR shows the amount of risk while investing in the company's stocks. The GR of the company was very high in the year 2006, but after that the company did an excellent job to drag it in a single figure. The average GR of UPS is 8.72% which is reasonable for a multinational company. It is a clear indication of the attraction of the investors towards this particular stock. In order to be more competitive and attractive, the organization must work hard to decrease this particular ratio or to maintain it in a single figure for the future likewise it is currently doing. Let's now do the 3rd section of the report.
Section-3 Costing
Costing is the most influential and underpinning element for the organizations. Companies have to assure that the costs of the company will not surpass from the revenues. The concept underlies in Economics is very important for the companies that as far as the Marginal Revenue Curve is above the marginal cost, the company is actually in a position to increase the revenue. There are two categorizes of the total costs (Zebang 2001). One is called the Variable cost and Fixed Cost. A company which does not meet with the variable cost can sustain but a company which does not meet with the fixed cost can not sustain in the competitive environment.
According to the analysis, UPS has used the standard costing measures to record the cost of good sold of the company. The cost incurred in buying raw materials is the only cost to recognize for the company. The company varies its cost recognition with the amount and quantity of the packages distributed. The fixed cost which is carrying cost and other cost used to bring the raw material at the manufacturing unit is always a concern for the organizations.
From last few years, UPS faced numerous problems regarding managing the cost of doing business. Its operations in the developing countries like India and Pakistan does not give the best yield to them. Now the company has two options, whether to stop the operations within these countries or utilize a well structured, sophisticated and well maintained costing system called standard costing system within its premises. The biggest advantage of using the standard costing and variance analysis is that the company will certainly become economically efficient. Standard costing enables an organization to spend the costs as per the requirement. There are things like variances analysis and standard measure analysis which will certainly opens the door for UPS in a new and economic efficient environment. All of such costing measures have been used by the big multinational companies worldwide. The next section is about the project evaluation and the method using by the company to do the same, let's start it.
Section-4 Future Projects Analysis
Projects are at the heart of an organization as without projects an organization can not even sustain in this competitive market. Due to the large portfolio, the company is continuously expanding its network across the globe. Organizations have to take different decisions in regular intervals. Among a number of economic decisions, the decision relates to project evaluation is one of them which have a lot…
