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UPS vs. FDX
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<blockquote data-quote="clueless" data-source="post: 634427" data-attributes="member: 15572"><p>The high degree of leverage relative to the other companies you listed is interesting, however keep in mind the appropriate amount of debt-financing to some extent depends upon the <em>industry</em> in which the companies operate. Assuming your numbers are accurate, the debt to total asset ratio of UPS would be approximately 60% (total assets would = E + 1.48 E= 2.48E, where E=Equity and Debt = 1.48E). The average for the air transport industry is approximately 55%, making UPS slightly higher than the industry average (granted, it is also one of the components, skewing the results somewhat). Based on the same principle, Microsoft's debt to total asset ratio would be 13% whereas the industry average for its industry (computer software/services) is 15%. </p><p></p><p>Comparing the debt ratio of UPS to that of Microsoft is a bit like comparing apples to oranges, given the different natures of the industries.</p><p></p><p>Btw--the industry average data was from the most recent data set on this site and is based upon the Value Line database.</p><p></p><p><a href="http://pages.stern.nyu.edu/~adamodar/" target="_blank">http://pages.stern.nyu.edu/~adamodar/</a></p><p></p><p>Also, note that UPS' designated industry (if you download the source data) is 'air transport,' not 'trucking.' FedEx is also listed as a component of the 'air transport' industry, in case you're wondering.</p><p></p><p>In any case, thanks for pointing the high debt ratio out--I had no idea that UPS was so highly leveraged. The reason that could be problematic is that when the debt rolls-over and requires refinancing, the interest rates will undoubtedly be higher than they are now, increasing the cost-of-capital.</p></blockquote><p></p>
[QUOTE="clueless, post: 634427, member: 15572"] The high degree of leverage relative to the other companies you listed is interesting, however keep in mind the appropriate amount of debt-financing to some extent depends upon the [I]industry[/I] in which the companies operate. Assuming your numbers are accurate, the debt to total asset ratio of UPS would be approximately 60% (total assets would = E + 1.48 E= 2.48E, where E=Equity and Debt = 1.48E). The average for the air transport industry is approximately 55%, making UPS slightly higher than the industry average (granted, it is also one of the components, skewing the results somewhat). Based on the same principle, Microsoft's debt to total asset ratio would be 13% whereas the industry average for its industry (computer software/services) is 15%. Comparing the debt ratio of UPS to that of Microsoft is a bit like comparing apples to oranges, given the different natures of the industries. Btw--the industry average data was from the most recent data set on this site and is based upon the Value Line database. [url]http://pages.stern.nyu.edu/~adamodar/[/url] Also, note that UPS' designated industry (if you download the source data) is 'air transport,' not 'trucking.' FedEx is also listed as a component of the 'air transport' industry, in case you're wondering. In any case, thanks for pointing the high debt ratio out--I had no idea that UPS was so highly leveraged. The reason that could be problematic is that when the debt rolls-over and requires refinancing, the interest rates will undoubtedly be higher than they are now, increasing the cost-of-capital. [/QUOTE]
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