United Parcel Service’s Ipo Harvard Case Solution & Analysis

Introduction:

United Parcel Service is the world’s largest, most proficient, and best incorporatedlogistics Specialist Company in the world. United Parcel Service had annual revenue of $19 billion in 1999 with the market share of 51% with respect to the revenue of the total logistic companies in the United States.

The United Parcel Service began as a small courier service in Seattle; delivering everything from trays of food to packages to messages. As the company becameold in the market and increased its client base, it extended itsreputation for adapting the latest technology to the courier business. Motorcycles were amongst the first advances to change the courier service; which were followed by airplanes, trucks etc.

The innovations in the company created financial and operational problems for united parcel service according to Kurt Kuehn, chief financial officer, “It's tough to be a private company and generate enough funds internally if you're in the airline industry.” This made united parcel service to go for first debt-issuance in the mid-80.

New technology in the company with externally raised fundshelpedunited parcel service to decrease delivery time and increase promptness of the system within the company. This high level of the innovation madeunited parcel service different from its competitors and allowed the company to get competitive advantage in the logistics market of the United States of America.

United Parcel Service’s Ipo Harvard Case Solution & Analysis

Problem statement:

The top management of the United Parcel Serviceis going to analyze and calculate the appropriate and favorable share price of the company in the stock market if the company goes for its first Initial Public Offering for first time in the history of United Parcel Service. For this purpose, the management of the United Parcel Serviceis going to make the decision on the model, which can be used for the calculation of the market price of the share of the United Parcel Service.

Case analysis:

Estimate of the Value of United Parcel Service Stock

The top management of the United Parcel Service can calculate the value of the company through different types of the valuation models and can calculate the appropriate price of the share from this value of the company. The list of the valuation models is as follows:

  • Discounted cash flows valuation model
  • Price earnings ratio valuation model
  • Free cash flows (FCF) valuation model
  • Three stage valuation mode.

For the calculation of the share price of the United Parcel Service, we have used the two valuation models free cash flow valuation model and Price earnings ratio valuation model. The value of the United Parcel Service company is then used to calculate its appropriate share price used in the process of initial public offering.

Free cash flows valuation model (FCF):

In this model we take the projected net income of the company for future years and adjust the net income with cash and noncash items in the financial statements of the company. The cash and non-cash items include depreciation charge for the year, capital expenditure, changes in the working capital of the company in future years................

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