Fedex Vs Ups Ratio Analysis - a Race to Win China

FedEx vs. UPS : A Race to Win China

FedEx and UPS are two large competitors who dominate the freight services and air delivery industry with in the U.S. They are rival firms who have implemented an all out blitz attack on the other company to try and steal their market share. Every competitive edge one company has, the other tries to exactly match it or make it better. Both companies have raised large amounts of capital to fund their expansion programs. Recent developments occurring with the relationship between U.S. and China's air transportation agreement has opened up 100 weekly air cargo flights between the two nations.

The battle has begun for who will take this market share. There are two ways either UPS or FedEx will be able to capitalize on this new market that is coming available. First of all, they have to have the finances to do so. The other way is they have to have a strong strategic plan to implement and have a strong presence in the current operations. In this paper, I will discuss who I think is better positioned to take the larger portion of these flights and why they will be able to accomplish this.

The first small thing I think is important to note is that UPS has a higher Price to Earnings(P/E) ratio but they have a lower Earnings per Share(EPS). I believe this has to due with risk. The investors are indicating which company's earnings they believe are going to be more stable over time. As we get further into the ratios of the company, it will become clear as to why this is the case.

When taking a look at net profit margins, we can see that UPS had enjoyed consistently higher numbers from 1992 to 2003. UPS has averaged 6.12% net profit margin while FedEx has only had 2.64%. In addition, FedEx's highest net profit margin was only 3.77% compared to UPS's 10.18%. UPS is either able to command a higher price for their services, or they are better able to manage their expenses. Over the long run, this will significantly pay off as UPS will be able to make more money

Working capital management is very important to look at. UPS and FedEx both have very different strategies when it comes to working capital. FedEx has a very aggressive working capital management strategy. This is evident in 1992 and 1993 where their current ratio is below 1, indicating they have negative net working capital. From 1992 to 2003, FedEx averaged a current ratio of only 1.084 while UPS averaged 1.46.

It is important also to note how the two firms have financed their huge growth numbers. FedEx initially in 1992 and 1993 had a debt to equity ratio over 1. Through the years, they have been able to decrease this ratio down to .28, which it has been at the past two years. UPS has been able to maintain their debt/equity at or below .5 from 1992 to 2003. They have had slight periods of increases, but have remained in the mid .2 to mid .3 range. If we look at time interest earned, we can see that UPS has significantly higher numbers than FedEx. This means they are better able to pay back their interest on their debt.

Dividends are also important to look at. As we can see, up until 2003, FedEx paid