United Parcel Service Inc.
Strategic and Financial Analysis
Under the supervision of Dr. Kenneth Hatten
Table of Contents
Organization of the Paper 4
Opening Statement 4
UPS Financial Statement Segmentation: UPS Consulting 5
UPS Bank 5
Income Statement 5
Balance Sheet 6
UPS Airline 6
Balance Sheet 6
Income Statement 8
UPS Trucking 8
Income Statement 8
Balance Sheet 9
Using Ratios to Build UPS Consulting 10
DuPont Analysis 10
Balance Sheet and Income Statement 11
List of Sources 14
Appendix - Strategic Environment 16
Market Overview 16
Porter’s Five Forces 17
Threat of Substitutes 17
Buyer Power 18
Supplier Power 18
New Entrants 18
Functional Analysis 19
United Parcel Service, Inc. 19
Federal Express Corporation 21
Fully loaded Functional Analysis charts 24
Organization of the Paper
This paper focuses on the segmentation of United Parcel Service, Inc. (UPS) as if it were four distinct businesses:
1) UPS Bank
2) UPS Airline
3) UPS Trucking
4) UPS Consulting
The paper also includes missing analysis from the Phase I paper in an appendix called “Strategic Environment” and ends with exhibits to support the Functional Analysis in the Appendix.
The final section is a list of sources used in the analysis. The course concepts and resource material used in class are also an integral part of the paper and are not listed as sources but it is assumed that the concepts such as the Functional Analysis model and the method of segmenting businesses using lateral processes need no further citation.
Currently, UPS is segmented on US Domestic Package, International Package and Non-package and does not highlight areas of profitability in a way that allows comparisons between UPS and companies in related industries, such as airlines.
This paper proves that UPS’ maintains a dominant position in the industry through their extremely profitable consulting services, thus raising their ROE of 20% well above the industry average of 10%.
The paper begins with UPS Bank because it is the only segment with reported net income and simplified balance sheet. The analysis moves to UPS Airline because aircraft make up a large component of Fixed Assets and allows us to quickly move to UPS Trucking.
After UPS Trucking is segmented out of UPS, what is left is UPS Consulting, activity that includes the Supply Chain business and consulting services found through out UPS’ different business segments.
UPS Financial Statement Segmentation: UPS Consulting
Within UPS, there are several different companies possible by segmenting the financial statements. I decided that the company with one of the largest airlines in the world contains a highly profitable airline. I also know that UPS recently acquired a Connecticut bank for the purposes of making trade credits and other financing arrangements for its clients, so I felt that the financials could also shed a bank.
Remaining was UPS’ profitable trucking business and one last company. That one last company is where UPS’ future profitability lies. I call it UPS Consulting at the risk of confusing the reader with the already segmented Supply Chain consulting business. I want to prove that it is the Consulting business, defined as that part of the business where fixed assets are not employed in generating profits, that is driving UPS’ very high returns.
In my analysis, I will prove that the consulting business, spread out across UPS’ business segments, is responsible for producing $2.4 billion in profits on $4.0 billion in sales, with a ROE of almost 50%, versus UPS’ ROE of 20%.
I began by first segmenting the bank. Formerly known as First International Bank, UPS Capital is a Connecticut bank and must report to the CT Department of Banking, which is where I found Total