Case Introduction/Overview Set in April 2016, this case invites students to assess FedEx Corp.’s and United Parcel Service, Inc.’s (UPS’s) financial performance. The two firms have competed for dominance of the package-delivery industry. This case is intended for use in an introductory discussion of corporate value creation. It requires few numerical computations from the student; rather, the tasks for the student are to interpret the results and to reflect upon their implications. The contrasting record of the two firms affords a platform to: · Assess and compare the financial performance and health of two organizations. The case provides historical financial, market, and economic profit analysis for both firms. The case provides a stark contrast between backward-looking financial performance and forward-looking market expectations of performance. · Motivate definitions of corporate excellence, with particular emphasis on comparing operational and financial excellence. · Evaluate the financial implications of competition and corporate transformation. Case Report Instructions This is a “Directly answer a set of questions” case report. For this case study, answer each of the following questions (as per the guidelines in “Learning with Cases and Writing Case Reports”). 1. What is going on in the package-delivery industry? 2. Do you see this market as highly competitive? Why or why not? How are the two firms competing? What are the competitive prospects for the foreseeable future? 3. If you had to vote for one of these two firms to enter the pantheon of excellent companies, which one would you choose? 4. Are the operational metrics related to the financial metrics? For example, how is the superior-ranked UPS brand score related to the financial metrics, or how is the superior-ranked FedEx employee satisfaction score related to the financial metrics? 5. How is it that UPS has managed to achieve such an impressive ROE figure? A powerful way to explore this question is to decompose the ROE into three components: Margin (Net profit / Revenue), Turnover (Revenue / Total assets), and Leverage (Total assets / Book equity). Then compare each of these elements across the two firms over time. 6. What is economic profit and what does it measure? 7. What does stock performance tell us? How can FedEx’s stock-price performance be superior when UPS’s financial ratios are so much better? In answering this question, you should address the difference between backward-looking financial ratios and forward-looking stock-price performance. 8. How do investors justify a higher PE ratio for FedEx? 9. Create a Strength/Weakness table using the following format. Your table should have at least two bullet point items (you can have more) per cell. The strengths and weaknesses of various financial measures Strengths Weaknesses 1. Direct inspection of the financial statements · · 2. Financial ratios · · 3. Earnings per share (EPS) and price/earnings ratios · · 4. Total returns to investors · · 5. Economic profit (EVA) · · What are the relative strengths and weaknesses of the various financial measures? 10. What do we learn from the perspective of the research analysts? NOTE: You can access a student spreadsheet file that you might find helpful for this case on the textbook website found at the following link: http://highered.mheducation.com/sites/1259277194/student_view0/index.html This directory contains Excel spreadsheet files with the primary exhibits for this case. Some of the Excel tables exercisable models which will allow you to test ideas with minimum setup time. ——————————————————————————————————————– Case 3 Report Instructions CASE 3: Larry Puglia and the T. Rowe Price Blue Chip Growth Fund Case Introduction/Overview Set in 2016, the case recounts the remarkable performance record of the T. Rowe Price Blue Chip Growth Fund (Blue Chip Growth Fund), a mutual fund managed by Larry Puglia at T. Rowe Price, Inc. The case describes the investment style of Puglia, whose record with the fund over its 23-year history had on average beaten the Standard & Poor’s 500 Index. The tasks for the student are to assess the performance of the fund, consider the sources of that success, and decide on the sustainability of Puglia’s performance. Consistent with the introductory nature of this case, the analysis requires no numerical calculations. This case provides a nontechnical introduction to the U.S. equity markets and sets the foundation for some basic concepts in finance. The following are the specific teaching objectives: · Motivate a discussion of the concept of capital-market efficiency · Impart some recent capital-market history—in particular, regarding the market crash of 1987, the Internet bubble of the late 1990s and early years of the 2000s, and the credit crisis/recession of 2007–09 · Convey a perspective on the role of large institutions in setting the price of securities · Introduce the basic concept of value additivity. As illustrated by the net asset valuation of mutual funds, the value of a firm will be equal to the sum of the value of its parts Case Report Instructions This is a “Use a set of provided questions to prepare a formal case report” assignment. For this case study, you must write a professional report as per the guidelines in “Learning with Cases and Writing Case Reports.” You should create an action-oriented advisory report that presents concisely your analysis and recommendations. The questions below should help you analyze the case and identify the specific issue(s) raised. These are not questions that you should directly answer in your report; instead these questions are designed to help you frame your report with specific focus on the last question: “Would you recommend investing in Puglia’s Blue Chip Growth Fund?” 1. How well has the Blue Chip Growth Fund performed in recent years? In making that assessment, what benchmark(s) are you using? How do you measure investment performance? What does good performance mean to you? 2. What might explain the fund’s performance? To what extent do you believe an investment strategy, such as Puglia’s, explains performance? 3. How easy will it be to sustain Puglia’s historical performance record into the future? What factors support your conclusion? 4. Consider the mutual-fund industry. What roles do portfolio managers play? What are the differences between fundamental and technical securities analysis? How well do mutual funds generally perform relative to the overall market? 5. What is capital-market efficiency? What are its implications for investment performance in general? What are the implications for fund managers, if the market exhibits characteristics of strong, semistrong, or weak efficiency? 6. Suppose that you are an advisor to wealthy individuals in the area of equity investments. In 2016, would you recommend investing in Puglia’s Blue Chip Growth Fund? What beliefs about the equity markets does your answer reflect?
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