Accounting 205

ACCOUNTING 205 10

Accounting205

CompanyOverview

UnitedParcel Service (UPS) is a parcel delivery organization that becameincorporated in 1999. The company is involved in providing globalsupply chain management solutions. The organization operates in threesegments, which include international division, the U.S. domesticunit, and supply chain &amp freight division. The U.S. domestic unitoffers domestic parcel services in the United States. Alternatively,the international parcel segment handles parcel operations indifferent areas in Europe, Asia, the Middle East, Canada and LatinAmerica, Africa, and the Indian sub-continent. Alternatively, thesupply chain &amp freight division comprises of the organization’struckload brokerage, logistics services, financial offerings via UPSCapital, and UPS freight.

UPShas a desktop shipping application referred as WorldShip. Theapplication offers middle market as well as large customers withshipping capabilities. The company’s marketplace shippingintegrates Amazon and eBay and permits marketplace sellers to shiptheir orders through the WorldShip or www.ups.com.The company operates in the air delivery &amp freight servicesindustry. The primary competitors of UPS include FedEx Corporationand the United States Postal Service.

HorizontalAnalysis

HorizontalAnalysis of the Income Statement (Amounts are in millions)

2015 ($)

2014 ($)

2013 ($)

Revenue

58,363

58,232

55,438

Operating Expenses

50,695

53,264

48,404

Operating Profit

7,668

4,968

7,034

Investment Income

15

22

20

Interest Expense

(341)

(353)

(380)

Income Before Income Taxes

7,342

4,637

6,674

Income Tax Expense

2,498

1,605

2,302

Net Income

4,844

3,032

4,372

Horizontalanalysis of the Balance Sheet (Amounts in millions)

2015 ($)

2014 ($)

2013 ($)

Cash and Marketable Securities

4,726

3,283

5,245

Total Assets

38,311

35,440

35,553

Long-term Debt

11,316

9,856

10,824

Shareowners’ Equity

2,491

2,158

6,488

Horizontalanalysis describes a comparison of historical financial data overdifferent reporting periods (Kimmel et al., 2011). The main purposeof carrying out a horizontal analysis is to see if there are anynumbers that are unusually low or high in comparison to the data forthe considered analysis period. The presence of unusual numbers cantrigger an investigation of the reason for the unusual numbers. Oneof the importances of the horizontal analysis is that it can be usedin comparing the performance of an organization within a given periodconsidered for analysis. For instance, it can help in comparing theprofit or revenue trend within a period of five years. With thehorizontal analysis, it is possible to notice any positive ornegative trend of an organization. Horizontal analysis is also ofimportance because it helps investors in determining how anorganization has grown over a given period. Furthermore, thehorizontal analysis can be used in comparing the growth rate of anorganization in relation to the competitors and industry (Kimmel etal., 2011).

Fromthe horizontal analysis, there is a positive trend in the company’srevenues since the revenues have grown over the three years. There isalso a positive trend in the total assets, income before taxes, andnet income for the company since the items have indicated growth.However, there is a negative trend depicted in the operating expensesand shareowners equity operating expenses have been growing over thethree years while shareowners equity has indicated a decreasing trendover the three years.

RatioAnalysis

CurrentRatio for 2014

CurrentRatio = Current Assets divided by Current Liabilities

Currentassets = 11,808 M

Currentliabilities = 8,639 M

CurrentRatio = 11,808 / 8,639

=1.37

Currentratio 2013

Currentassets = $ 13,387 M

Currentliabilities = $ 7,131 M

CurrentRatio = $ 13,387 / 7,131

=1.88

QuickRatio for 2014

QuickRatio = (Cash and cash equivalents + Marketable securities + AccountsReceivables) divided by Current Liabilities

Cashand cash equivalents = $ 2,291 M

Marketablesecurities = $ 992 M

AccountsReceivables = $ 6,661 M

CurrentLiabilities = $ 8,639 M

QuickRatio = (2291 + 992 + 6661) / 8639

=9944/ 8639

=1.15

QuickRatio for 2013

Cashand cash equivalents = $ 4,665 M

Marketablesecurities = $ 580 M

AccountsReceivables = $ 6,502 M

CurrentLiabilities = $ 7,131 M

QuickRatio = (4665 + 580 + 6502) / 7131

=11747 / 7131

=1.65

CashRatio for 2014

CashRatio = Cash and Cash equivalents divided by Current Liabilities

=2291 /8,639

=0.27

Cashratio for 2013

=4665 / 7131

=0.65

Interpretationof Ratios

Thecurrent ratio provides an idea concerning whether an organization hasthe capacity of paying back its liabilities using its assets. Highvalue of the current ratio implies that the organization has thecapacity to settle its obligations (Robinson, 2012). In the case ofUPS, the current ratio for 2014 and 2013 were 1.37 and 1.88respectively. This is an indication that the entity has the capacityof repaying its liabilities using its current assets because theratio is greater than one. The quick ratio is used in measuring thedollar amount of liquid assets that is available for every dollar ofcurrent liabilities (Robinson, 2012). In interpreting the ratio, theelevated the ratio, the improved is the liquid position of anorganization. The quick ratios for the company in 2014 and 2013 were1.15 and 1.65 respectively. The ratios imply that $1.15 and $1.65 ofliquid assets were available in 2014 and 2013 respectively to covereach $1 of the current liabilities. Since the quick ratios during thetwo years were high, it can be indicated that the company was liquidin 2013 and 2014. On the other hand, the cash ratio helps indetermining the ability of a company in repaying its short-term debt.In case the ratio is greater than 1, it implies that a company hasmore cash and cash equivalents compared to current liabilities andthus can settle its short-term obligations. Alternatively, where thecash ratio is less than 1, it implies that the current liabilitiesare less compared to cash and cash equivalents, and thus a companycannot be in a position to cover its short-term obligations(Robinson, 2012). In the case of UPS, the cash ratio for both 2013and 2014 was less than 1, which is an indication that the companycannot be in a position to cover its short-term liabilities.

LiquidityIssues Based on Current and Quick Ratio

Thecurrent and quick ratios are imperative measures of an organization’sliquidity. In case the two ratios are high enough, a company can bedeemed to be liquid. However, when the two ratios are less than 1,then a company is viewed as not liquid. From the above analysis ofthese two ratios, it is apparent that the two ratios are greater than1. This implies that the company is liquid. The results of theratios may be affected by incorrect financial information. Ininstances, where inaccurate financial data has been provided by acompany, the results of the ratios can be affected because it ispossible to obtain a higher or a lower ratio.

LiquidityIssues of Competitors

FedExCorporation

Thecurrent ratio for the company in 2014 and 2013 was 1.82 and 1.96respectively while the quick ratio was 1.58 and 1.73 for 2014 and2013 respectively. Alternatively, the company had a cash ratio of0.63 and 0.55 in 2014 and 2013 accordingly. The current and quickratios of the company indicate that the company is liquid. However,the cash ratio shows that the company has problems in handlingshort-term obligations.

UnitedStates Postal Service

Thecurrent ratio for the company in 2014 was 0.15 while in 2013 it was0.1. The quick ratio for the company in 2014 and 2013 was 0.14 and0.1 respectively while the cash ratio for the company in 2014 was0.12 and 0.07 in 2013. From the liquidity ratios of the company, itcan be argued that this company has liquidity problems.

Recommendation

Fromthe analysis, I can recommend individuals to invest in the UPSCompany. One of the strengths of the company emanates from itsratios. From the current ratio, it is apparent that the entity hasthe capacity of repaying its liabilities using its assets. This givesan assurance to investors that the organization has valuable assets.Also, the horizontal analysis shows that there is an upward trend inthe growth of assets since their value has been depicted to increasefrom 2013 to 2015 this may indicate the likelihood of the companyexpanding more in the future as a result of using its increasingassets. Furthermore, from the horizontal analysis, it is evident thatthe company has a positive trend in revenues for the past threeyears. The upward trend in revenues is an indication that the companyhas prospects for future growth. The risk in the company may includean increase in the operating expenses as well as an increase in thelong-term debt. However, these risks cannot prevent one frominvesting in the company since the company can come up withstrategies that will handle or mitigate the risks. Moreover, therisks cannot be indicated as high risks.

Conclusion

UPSis a package delivery organization that became incorporated in 1999.The company is involved in providing global supply chain managementsolutions. The organization operates in three segments. Its chiefcompetitors are FedEx Corporation and the United States PostalService. The company operates in the air delivery &amp freightservices industry. From the horizontal analysis, there is a positivetrend in the company’s revenues since the revenues have grown overthe three years. There is also a positive trend in the total assets,income before taxes, and net income for the company since the itemshave indicated growth. However, there is a negative trend depicted inthe operating expenses and shareowners equity. From the ratioanalysis, it is apparent that the company is liquid based on theanalysis of both the quick ratio as well as the current ratio.Therefore, it is worth investing in the company.

References

Kimmel,P. D., Weygandt, J. J., &amp Kieso, D. E. (2011). FinancialAccounting: Tools for business decision making.Hoboken, N.J: John Wiley.

Robinson,T. R. (2012). Internationalfinancial statement analysis.Hoboken, N.J: John Wiley &amp Sons.

UnitedParcel Service, Inc. (2015). UnitedParcel Service Annual Report.Retrieved fromhttps://www.sec.gov/Archives/edgar/data/1090727/000109072715000008/ups-12312014x10k.htm