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Industry: Courier services except by air

Financial ratios analysis table

Source: United Parcel Service, Inc. financial benchmarking. (n.d.).

The report of financial analysis

Introduction

The comparison between the company's financial position to that of the industry is an essential measurement of the competitiveness and ranking of the company within the industry. When the company's financial ratios are in good condition as compared to the average of the industry, then the performance of the industry is said to be higher, unlike when the financial performance is poor compared to the industry average. This report provides a comprehensive financial analysis of United Parcel Services (UPS) Company.

Comparison of the profitability of the company to that of the industry

Based on the gross margin comparison, the company that is 22.6 as compared to 12.9 of the industry's average explains that the company gross profit generated by the company is better than that of its peers because it is higher compared to that of peers. Although the company gross margin is high as compared to its peers, the efficiency in which it turns the sales into profit is lowers as compared to the average of the industry, which requires appropriate measures such as reducing the cost of sales to ensure that the profit increases for the overall profit level as compared to that of its competitors. Returns on sales for the company is 3% compared to the industry average of 6.1%.

Comparison of company’s liquidity to that of industry

In terms of liquidity ratios, the company’s performance is worse than its competitors in the industry. The current ratio for the company is 1.19 that is lower than the industry average that is 1.48. with a lower current ratio, the company may find it challenging to meet short-term obligations, putting itself in complex financial performance and giving the industry competitors competitive advantage. It is measured in terms of how the relationship between the assets owned by the company and the liability and the lower ratio indicates that the liability of the company is higher than its assets which makes it hard for the company to pay its short-term obligation hence having in financial difficulties as compared to its competitors that have a higher current ratio.

Comparison of company’s solvency position to that of the industry

The solvency ratio is a financial analysis tool that measures how best the company's cash flow can be used to cover the company's long-term debt. Solvency position is measured in terms of the debt ratio, debt-to-equity ratio and interest coverage ratio. In terms of the debt ratio, the higher the ratio, the poor the position of the company's performance because the company's total liability will be higher than its assets, making it hard for the company to cater for the most needed expenses. The debt ratio for the company is 0.99 as compared to 0.52 of the industry’s average (Trucking and courier services, except air: Industry financial ratios benchmarking, n.d.). Therefore, it indicates that the company’s liabilities are higher than its current assets compared to the ratio of the competitors, making it hard for the company to pay for its short-term expenses.

Debt to equity ratio is a financial analysis used to evaluate the company's leverage position that measures the company's financial part by dividing the company's total liability to the shareholder’s equity. The lower the debt-equity ratio, the higher the financial position and the higher ratio, the worse. The debt-equity ratio for the company is 92.29 as compared to the average industry ratio of 0.87 that indicates that the company owners’ equity is lower as compared to the total liability of the company hence putting the company in a difficult financial position as compared to the competitors with a lower debt-equity ratio because they can easily cover for their liabilities by the use of its shareholder's equity.

The interest coverage ratio evaluates how easily the company can pay its interest on the outstanding debts used for its business operation. On interest coverage ratio, the company has a lower rate compared to the industry average where the company has 3.63 as compared to 15 of the industry position. Therefore, the company has a lower interest coverage rate, indicating that it has difficulty paying its interest on the outstanding debts compared to most of its competitors in the industry, hence putting itself in a worse financial position than that of its competitors.

Comparison of the company’s efficiency to that of the industry average

Financial efficiency describes how best the company converts the resources into profitability for the company's benefit in terms of financial position. It includes ratios such as return on assets, equity, asset turnover days and return on sales. In terms of return on assets, the company is in a worse financial position than competitors in the industry because it is 2.2% compared to 4.8% of the industry. This means that the company rate of converting assets into profits is lower than that of its competitors. The return on equity for the company is in a better position than the competitors compared to the peers in the industry because it's 68.7% compared to the industry rate of 10.7%. It indicates that the company converts the equity ratio into profits easier as compared to its competitors. On asset turnover days, the company takes 263 days compared to the average industry of 283, which indicates that the company takes few days to convert assets into profit hence giving it a competitive advantage over the competitors in the industry. In return on sales, the company has 3% compared to the sector's average of 6.1. the differences indicate that the company the rate of converting the total sales into profit for the company is lower than most of its peers in the industry hence giving the company difficulty in managing its finance for the daily operations.

Conclusion

The company operates in a worse position than its peers in the industry in terms of liquidity ratios because most of its liquidity ratios are poor financially. A lower current ratio indicates that the company may find it challenging to meet short-term obligations, hence putting itself in complex financial performance, giving the competitors within the industry a competitive advantage. The debt ratio for the company is 0.99 as compared to 0.52 of the industry’s average. Therefore, it indicates that the company’s liabilities are higher than its current assets compared to the ratio of the competitors, making it hard for the company to pay for its short-term expenses. The company has a lower interest coverage rate, indicating that it has difficulty paying its interest on the outstanding debts compared to most of its competitors in the industry, hence putting itself in a worse financial position than that of its competitors. The company’s liabilities are higher than its current assets compared to the ratio of the competitors, making it hard for the company to pay for its short-term expenses.

References