analysis and evaluation of the business and financial performance of DHL

analysis and evaluation of the business and financial performance of DHL

Introduction

The project is structured to provide an analysis and evaluation of the business and financial performance of DHL Company for a duration of the last three years.

Encouragement

It is by the study of the ACCA program that has enabled me achieve the knowledge of understanding the principles and standards of IFRS accounting. Through the study of some of the following modules; financial management(F9),financial reporting(F7) and financial accounting(F3).the modules broadened my thoughts and gave me the ability to make evaluation on financial statement information and at the same time acquainting me with the skills of making analysis of any company’s’ business and financial performance. Having acquired all the skills in my class work developed a feeling of confidence to select a project making an analysis and evaluation of a company’s business and financial performance over a period of the last three years, on that matter I chose focusing on the operation of DHL Company for my project findings. Any company that is in existence under its overall map goals and objectives which fuels the going concern, assurance of the business position, generation of profits and how to remain relevant in the industry are the basic factors that drives the company on how it should strategize its operation and ensure that it achieves its main goals and objectives and within the projected time preference. Evaluation of the company’s business and financial performances periodically is significant and a key interest to the stakeholders such as the investors who are focused on evaluating how their investment in the company is yielding benefits, the statements are helpful for them in make investment decisions.DHL Company is operating in an industry that is highly competitive due to the introduction of significant and rapid changes in the sector such as e -commerce. The rate at which the Amazon corporation is winning the customers tastes and preference globally is alarming and posing a serious competition to the logistic industry, with the e-commerce shipment projected to rise from the present 50 million to 100 million packages by 2026.Due to these challenges being developed in the industry DHL is currently embarking on restructuring its operations by also rocking the e-commerce platform and continued providing services to its customers in a more efficient manner. The changes that have been adopted by DHL Company on its marketing and advertisement strategy have created an impact of the company in its last 3 financial year which is measurable by the changes in the business and financial performance indicators.

Using DHL Company in conducting my project analysis have added advantages since

• It is easier to access the information of the company since it is a public company
• The company presents a wide scope of information that is essential for the analysis

DHL Company

Dalsey Hillblom and Lynn company is the famous American and German courier, express mail and parcel service, the company is a division of the German logistics company Deutsche post DHL.The company is the globe’s largest logistics, operating in more than 220 countries globally, particularly deals in air and sea mail. The company is projected to be delivering over 1.3 billion parcels annually.

The company was established in 1969 in the United States and by 1970 the company had expanded its operations throughout the world. The interest of the company were primarily on intercontinental and offshore deliveries, thereafter after the accessement of the success that was achieved by the FedEx company prompted DHL in expanding its operations beginning in 1993.In 1998 Deutsche post started acquiring shares in DHL, and reached the control of interest by 2001, by December 2002 it had acquired all the outstanding shares. The company thereafter absorbed DHL into its express division, and expansion of the use of the DHL brand in other Deutsche post divisions, subsidiaries and business units. Presently DHL express shares its brand with business divisions such as DHL supply chain and DHL global forwarding. The company gained foothold within the United States after the acquisition of Airborne Express. The DHL express financial statements are usually published in the Deutsche post AG annual report. The company recorded an increase in its revenue generation by 4.7% to $17.2 million in the third quarter of the third quarter.

Project goals and objectives

The main objective of this is creation of an analysis and evaluation of the business and financial performance of the DHL Company within the last three years. For achievement of the objectives of the project I will focus on evaluating the following:

• Assessment of the DHL corporation capability of paying its short term obligations by use of liquidity ratios,
• Assessment of DHL company ability of generating profits on sales, equity and assets applying the profitability ratios,
• Assessment of the DHL Company levels of financial leverage using leverage ratios.
• Assessment of DHL Company ability to use its assets in the generation of sales using efficiency ratios
• Assessment of the external factors that may affect DHL Company operation in the future applying PESTEL analysis,
• Assessment of DHL Company strengths,weaknesses,opportunities and threats applying the SWOT analysis and then lastly,
• Comparing and contrasting the business financial performance of DHL Company with that of their competitor United Parcel Services (UPS) Company.

1. The questions that expect to be addressed by the objectives formulated is what has been the financial performance of DHL Company over the last three years, and how does the performance affect the future growth strategy of the company?
2. What are main drivers and factors which have impacted the business and its financial performance?

• What are the growth measures has the company put into place to counter the competition that presented by the rapid growing industry and still remain relevant?

1. How is the company utilizing any opportunities that presents itself to the benefits of the company?

Research Approach

Accomplishment of the project objective and collection of the right and appropriate information I will follow an inductive research approach. Inductive reasoning approach will begin with the observations and theories that are proposed towards the end of the research process due to observations.to achieve the objective of the project the research approach will focus on a three steps process approach; data collection, quantitative analysis and finally qualitative analysis.

Data collection

the data that will be used for the research purposes will be collected from credible sources, quantitative research model will be used for this case where data presented is in the form of numbers will be collected and statistically analyzed. Using qualitative research, there will be evaluation of various authors’ ideas and concepts which will be categorized under specific themes.

Quantitative analysis

Quantitative data analysis will be used to address various objectives within the project.it will make use of the information that is presented in the financial statements of DHL and UPS in the generation of the financial ratios. This is through the vertical and horizontal analysis generating comments on the business and financial performance of DHL Company will be developed. Using the horizontal analysis changes to the financial ratios for a period of the last three financial years will be calculated. On the same perspective the vertical will be able develop a note on the differences arising between DHL and UPS Companies financial ratios.

Qualitative analysis

SWOT and PESTLE analysis for DHL Company used in the project will be performed using qualitative research. The required information will be extracted from scholarly journals and highly reputable websites like the Bloomberg which will guarantee the validity of information collected from their sources. The information that has been collected is expected to be very unique to the company. The first step will be generation of a summarized image of the company applying certain themes. Followed by generation of an image which is summarized for the company using certain themes. Thereafter after making readings and studies from the sources available severally and performance of analysis regularly, I will thereafter make analysis of the data. For derivation of more details and patterns that are relating to the common presented themes, making a review on the materials present will be a prerequisite. Despite the availability of several guidelines towards the commencement of process, there will be no standardized technique of approach for making analysis of the qualitative data. Since it is a form of eclecticism and the quantitative research being interpretive by a descriptive format, the researcher has the mandate of making personal data decision. Giving the researcher the freedom of establishing the concepts which captures the intended and major information classifications, therefore generation of an explanation that is given under the viewpoint of the researcher.

Collection of information and business/accounting methods and techniques

Due to what most of the corporations termed as adherence to privacy and secrecy of the firm’s operations it was hard to obtain the primary data set of information specifically the excel data the research most focused on the reliance on the secondary information and data the major source of information that will be relevant in the conduction of research and analysis. I focused on going through relevant information such as the annual reports,articles,magazines,journals,websites and also newspapers in search for information and data that was regarded to be the most appropriate for the research project.one of the contributors in ensuring that I acquired all the required data and materials for the analysis of the project was the essence that the company had characteristics of a public company therefore following the regulation of the legislation for the company to make its financial information and statements available to the general public saved me the agony of searching for information especially financial one considering the company operates globally. Another advantageous aspect that ensured that I acquire the financial information of DHL Company so easily was that the company operate globally therefore its operation and its information was available all over the articles, magazines, websites, journals and newspapers.

Annual report

The research focused on analysis of the business and financial performance for a period of the last three years .in this cases the DHL Company annual reports for 2017, 2018, 2019 financial years were used. This information was available in the company’s website inform of softcopy. From the information garnered I was able to evaluate the following information

• The financial statements, cash flows, income statements as well as notes concerning various line of items.
• Analysis and discussion of the company’s financial position comparison of the results of the company from the previous two years
• Evaluation of the company’s operations involved in the recent years and determining the influence that is developed from the activities that they got involved.
• Information describing the company’s various units and divisions in connection assessing the market pricing as well as dividends payment by the company to its stakeholders.

The internet

The information from the internet sources cannot be taken for granted since they were also used in the research in the provision of secondary information that regarded the developments experienced within DHL Company and the delivery industry. Some of the useful sources from the internet that provided with materials used in the analysis o=within the project included:

McKinsey

Through McKinsey I was able to gather the contemporary issues that surrounds most of the businesses and management as well as the measures or strategies that have been put in place to address such incidences.

Bloomberg

This source was one of the most relevant source of business and financial information globally which contained accuracy ease of access and was with verifiable sources within the businesses themselves thus increasing the chances of achieving results that were up-to-date and relevant thus raising up questions that were subjected to the present operations.

ACCA textbooks

From the official ACCA textbooks the study texts involving financial management generated a broader understanding concerning the roles of a financial manager when it comes to making of investments, dividend policies or finance decisions. Financial reporting(F7) developed a broader knowledge and skills that helps in creating more understanding and application of the accounting standards as well as the theoretical framework used in the preparation of the entities financial statements, which includes groups and evaluation or interpretation of such kind of financial staements.in relation to Business analysis (P3) the study was helpful in offering most of the relevant knowledge professional judgement,and expertise in the evaluation of the business strategic position, making decisions on the strategic choices as well as implementation of the strategic actions by applying business processes that are beneficial and develops a  structural change for the firm.

Limitations for gathering of information

Most of the companies secured the primary data of their financial statements such as the excel worksheets with high privacy  such that it opted me to rely on the secondary information due to the difficulties presented when trying to access the top management for first hand data. For the secondary information that was available from the online sources was filled with the big problem when it came to the extraction of relevance,accuracy,reliability and authenticity, this was developed by the availability of more information that made it hard to make classifications and categorization as well as more time consumption.in other scenarios the information which was used in the description of the initial financial statements showed slight differentiations in the results of the following year developing mixed reactions when it came to the part of making comparisons. The financial information that was released by the companies to the online sites to be used by the public was not completely accurate since the data has been subjected to audits where a reasonable assurance is given concerning them.

Ethical issues encountered

For the collection of the appropriate information  I focused on  maintaining and valuing the integrity measures as stipulated by both the IFAC and ACCA code of conduct, which obliged any of the researcher carrying out a research to do so in a professional manner and with diligent care during the meetings and interviews conducted as any slight mistake that the researcher engages in will result to the assertiveness of the respondents and this creating a barrier in their communication impacting the process of gathering information. Another crucial element that I focused to observe is the assurance to the respondents that the information they provided concerning their entities was safe and free from exposure. These are some of the measurements that I had found to be mostly faced with and likely executable in my area of research. But this never happened I did not face any challenges on ethical issues since my project relied on RAP and therefore most of my resources were secondary saving me the agony of going out and source out for information.

Accounting techniques applied for the financial analysis

Ratio analysis

Through the use of ratio analysis I project to evaluate a number of issues within DHL Company such as its efficiency of operations, profitability and liquidity. Along the same line I can also apply the trend line in estimation of the direction of the future ratio performance in the company.

Liquidity ratios

The ratios are used in the measurement of the company’s ability of repaying its debt obligations and establishment of its margin of safety through conduction of some metrics calculations involving the quick ratio, current ratio and the operating cash flow ratio (Goel, 2016). Under this perception the current liabilities of the company are analyzed in relation to the liquid assets for evaluation of the extent of coverage of short terms debts in case an emergency arises.

Current ratio

Current ratio computations will be used in the measurement of the extent to which DHL Company is able to pay off its current liabilities that is payable during a period not exceeding one year, using its current assets like accounts receivable, inventories and cash. The higher the ratio that will be projected will mean the better the placement for DHL Company on its liquidity position

Current ratio=current assets/current liabilities

Quick ratio

This ratio will be significant in measuring DHL Company’s ability to meet their short term obligations using its most liquid assets hence excluding the inventories from its current assets. Other professionals will refer to this as the acid test ratio

Acid test ratio =   (C+MS+AR) ÷CL

Where the abbreviations stands for;

C=Cash and cash equivalents

MS=marketable securities

AR=accounts receivable

Efficiency ratios

Efficiency ratios are used in the measurement of the company’s ability to utilize its assets and manage its liabilities efficiently within the current period mostly the short term. Some forms of efficiency ratios include asset turnover ratio, receivables, receivables turnover ratio and inventory turnover ratio. These ratios will be significant in the measurement of the effectiveness of DHL Company in usage of its assets towards generation of revenues and the ability of management of such assets (Goel, 2016). Having any form of financial ratio creates a platform for comparison of the company’s ratio to that of its competitors within the same industry for instance the UPS Company operations.

Asset turnover ratio

During the research the usage of this ratio will be for the measurement of DHL Company ability to effectively generate revenue from its assets. The ratios calculate sales as percentage of the company’s assets. The ratio is efficient in expressing the amount of sales that are generated by every dollar of assets owned by the company.

Asset turnover ratio=Revenue (Sales)/Net assets

Profitability ratios

They represent a class of financial metrics that are used in the assessment of the business ability to make earnings relating to its revenue balance sheet assets, shareholders equity and operating costs, for a period of time applying data from a certain point in time. The profitability ratios helps in evaluating whether an entity that is having a relatively higher value compared to that of its competitors ratio from a previous period indicating that the company is fairing on well(Monnet, Miklos Vari and International Monetary Fund. Monetary and Capital Markets Department, 2019). Ratios will be the best and most informative and useful source that is applicable to compare a subject company(DHL Company)with similar companies(UPS Company)using the company’s own history or the average ratios available for the company’s industry as a whole. Some of the profitability ratios applicable in the project include;

Net margin

Defined  as the percentage of revenue that remains this is after all the operating expenses,taxes,interest and preferred stocks dividends specifically not common stock dividends that have been deducted from the entities total revenue

Calculated as (Total revenue-Total expenses)/Total Revenue=Net profit =net margin

Considering the concept of net margin of DHL Company is essential factor as it is one of the most closely followed concept by shareholders who tries to evaluate how the company is converting revenue into profits

Net margin will also be significant in making comparisons of the two companies in the same industry in a process known as margin analysis.

Return on Capital Employed

This are financial ratios used in measuring of the company’s profitability and the effectiveness of the capital that was used. The ratio is considered as one of the significant profitability ratio used mostly by the investors as a tool to evaluate the best suitable investment candidates.

ROCE= EBIT/Capital Employed

EBIT =Earnings before interest and tax

Capital Employed=Total assets – Current liabilities

Return on Equity

Measures the financial performance of a company calculated by dividing net income by shareholders equity. Since the shareholder’s equity is equal to the company’s assets deducting its debt, return on equity is regarded as the return on net assets. Return on equity will be used in measuring the effectiveness of the DHL Company management is utilizing its assets to generate profits.

Return on equity is usually  expressed in form of percentages and any company can make its calculations as long as the net income and equity are both positive numbers.net income is usually calculated before dividend are paid to the common shareholders and after dividends to preferred shareholders and interest expected by the lenders.

Return on equity =Net income/average shareholders’ equity

Gearing Ratios

This is a type of financial ratio which is used in making comparison of the company’s debt in relation to different financial metrics used for example total equity. Investors in most cases center their interest on using these forms of ratios to make assessment of how the company structures itself, followed by the amount of risk that the company faces for implementing the chosen structure (Muradoglu, Bakke and Kvernes, 2005).

Financial risk and financial leverage

Company’s financial leverage expresses how they utilize the borrowed focusing on increasing their sales preference, significantly impacting on the amount of revenues generated. For instance some companies may prefer increasing their financial leverage with a bank borrowing allowing them to make purchases of the most immediate necessary equipment. Financial risk encompasses the risk that is added in case of default if the company makes expansion of its use for financial leverage.

Debt to equity ratio

Types of ratios used in evaluation of the company’s financial leverage, calculated by dividing the company’s total liabilities by the shareholders equity. The figures are available on the balance sheets of the company’s financial statements. This ratios are significant in helping to evaluate the degree in which the company is able to finance its operations by using borrowed funds or owned funds.it also helps in evaluating whether the shareholders equity will be in a position of outstanding all the debts of the company in scenarios where the company falls into recession.

Business analysis

Background of UPS

United parcel service was established in 1907, the company is one of the renowned leading service providers in the field of logistics as well as other services. The roots of the company was from an idea of a 19 year old person who identified the opportunity of meeting the demands of the private sectors, he borrowed funds from family and friends and established the company. With time the company was recognized as one of the leading global supply chain management institution with reputation of faster movement of products and services. The company does not only focus on managing the movement of products and services but also involve in other services like funding the movement and movement of information. The company has also extended its operations to other specialist services provision.

Background of DHL

The company was developed in 1969 by a partnership of three persons. Currently the company is operating in over 220 countries globally. Involvement in business operation with organizations from many countries has contributed to DHL becoming an international company. The company has recruited a workforce of at least 350,000 employees around the world,DHL is regarded to be a  major provider of the endless logistics solution and services with a lot of intesintivity.the company is ranked one of the best in terms of providing parcel and logistics services. The company has also achieved rewards for its reputable provision of services with Excellency. For instance in 2017 the company won the best customers services awards given in many countries. The awards are categorized as either gold, silver or bronze.

Strategic issues

When conducting operations it was noted that the DHL Company considered the two significant strategic decisions that are critical in ensuring that the company is capable of achieving its long-term and short term goals. The strategies emulated include; PESTEL and SWOT analysis.

PESTLE ANALYSIS

Political factors

When evaluating the political influence and situations mostly of the European countries they appear to be very stable considered with other countries within the globe. Through evaluation of the political patterns and temperatures there is a high probability that the political status are expecting no major changes or major impacts in the near future. Almost the half of the European countries are members and part of the European community, this building one of the biggest market single structured market within the region.to achieve this the European union has been seen to eliminate the border restrictions to ensure free business and market assessment for the member states a strategy that triggered the growth of economic ties (Rahman, 2018). This has been one of the opportunities that has been exploited by companies and businesses such as the DHL benefiting the residents and customers who enjoy the services they achieve and the ultimate facilities.

The region has established close links with the neighboring countries, hence enhancing the chances for broader exports, by development of such agreements it has made it easier for transportation of goods and service delivery, easy payments methods.

The European Union has a belief in the delivery of its economic and political future vision of its member countries. The confidence assist the countries in building longer term decisions strategies a swell as identification of economic opportunities. Due to the competitiveness status of the European Union market the companies that have plans of making investments are expected to have sources of enough capital to indulge in business transactions.

The European Union has also built up the confidence status of the European economic and political future which has enhanced companies such as the DHL and UPS to develop long term decisions investment plans and strategies.

Currently due to the healthy working conditions for the business operations, the market is subjected to high competition to the investing companies challenging them to have unlimited funds especially for development of technology and network to ensure they remain relevant and maintain their reputation across the globe.

Legal factors

Legal environment performs a significant rules to the company but to the multinational companies this is more than important. Since the organizations involved such as the DHL have the obligation of making good and established relationships with many countries and are required to follow the legal structures and systems of the specific countries, which is not an easy task.in some cases it also makes it easier for the business to develop friendly business laws and appropriate market conditions which are positive for the business. The industry of courier express parcel operations are controlled by the postal directive of the European Union. Every company is bound to cooperate and follow the laid rules and regulations that are given by the European Union authority (Rahman, 2018). This affecting the DHL Company either positively or negatively depending on the situations.

Economic factors

The GDP of every economy is directly linked to the trade within the country. The establishment of the world trade has made industrialization very significant for most of the businesses. The development have subjected the product life cycle to becoming shorter, for companies to realize the success factor they forced to continue with the product development and maintenance of the standards of the products they develop to ensure they build their reputation.

The crisis being experienced in the global economy which has caused to the decline of the overall economic situation affecting the operations within the logistics business. The shipment volume has reduced largely and the down turn in the economy has resulted to the slowdown of all the economic industries in the whole industry. This has caused even the big corporations to struggle in finding survival tactics to maintain their reputation among the esteemed clients forcing them to adjust the investment and strategic plans.

The good news is that the European government is always supportive of the plans for the investment practices within its region through development of own structures that encourage investment decisions and practices.in case of any economic crisis the government is putting a hand in ensuring they handle the situation at an individual perspective. The current economies is largely different from the ancient time economy, but what is significant is that the economic situations currently are tracing their techniques by learning the outcomes presented by the previous economy mistakes(Rahman, 2018)Due  to the economic crisis that are being experienced unexpectedly the company are obliged to ensure during the crisis time they are able to amend and restructure their decisions to adopt to the sudden changes, it is also businesswise for the companies to engage small companies during crisis time in agreement for realization of competitive advantages.

Sociocultural factors

People’s perceptions and assumptions towards the operations of the company highly impact on the level of sales for DHL.For instance if people from a given country perceive the products delivered by DHL using their countries origin or beliefs and in other scenarios prefer using the products that have been produced locally to promote their local industries such perceptions impact the sales of the company negatively, where the company is subjected to incurrence of huge losses.in another case of a certain country which is at its developing stage and most of the population belong to the social class state which mostly prefer products and services of low cost and DHL being a high end brand will not achieve its sales goals in such countries since majority of the population do not have the power of affording their services(Rahman, 2018).

Technological factors

Technology is one of the basic requirements for businesses that conducts the logistics business, as the companies have to frequently link with their customers to get their feedback orders placed and recommendations.DHL has based all its operations on basis of speed and reliability and therefore keeping track of the technological trends it is very significant for each business to adopt the trends since it is helpful for them in maintaining their brand image and realization of massive profits, despite the same coming with bearance of higher costs at some times(Rahman, 2018). The provision of the customers with convenience when accessing the company products and services are accompanied with huge costs when embracing technology but it also guarantees the company a competitive edge.

Environmental factors

The industry of transportation and logistics mostly involves the usage of vehicles, which are contributing a lot to air pollution causing the damage to the surrounding as well as affecting the company’s reputation among its clients and the globe as a whole. The perception about DHL is largely attributed to be the main cause of customer loss due to the transportation methods they apply to deliver their products and services.DHL can survive from these losses through investment in corporate social responsibility activities which in the current world have involved themselves in developing waste management solutions and recycling skills  as well as implementation of such solutions within all their supply chains(Rahman, 2018) .This will help them gain the consumer taste and trust and foster profitability due to the involvement.

SWOT ANALYSIS

The initials SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.SWOT analysis is one of the techniques that is used in the assessment of the four factor in a business entity. The analysis can help the organization in utilizing what it has to the benefits of itself and reduce the chances of failure for its operations, through evaluation and understanding what the company’s may be lacking and elimination of the hazards that are mostly likely to affect organization and appear without creating any awareness(Seth, 2015).

Strengths realized by the SWOT analysis of DHL

Innovation

Projects that are developed by DHL in the logistics industry are outstanding. The company has made structural investments into trend research and solution development. The company has developed a DHL innovation center that is used in providing a platform where the stakeholders and customers are able to engage with the DHL experts (Seth, 2015). Some of the successful logistics solutions projects includes the Smart Sensor and the Resillience360.

Growth in developing countries

Most of the investments done by DHL can be traced in the developing countries main aim being setting up and expansion of their services with the essence of having large market appeal within the emerging markets. Such investments done by DHL can be traced in India where the company has made an investment of 16.3M$, for the purpose of development of new technologies inclusive of drones which are significant for making deliveries and management of logistics(Seth, 2015).

Large network

DHL Company provides its services to over 220 countries, this factor making it the largest global freight courier. The wide coverage network is an advantage for the DHL Company over other global competitors. Some of the strategies adopted by the company that have ensured they expand their coverage have been excellent in house consultancy and efficient communication.

Excellent financial position

DHL company financial background is well established and it is renowned for having ample amount of resources that backs it operations. Due to this establishment many and most of the companies have undisputed trust on operation of DHL and their service delivery (stefenson, 2004). The financial ability and position has been a significant tool that has seen DHL make expansions of its business operation every year.

Weaknesses realized in the SWOT analysis of DHL

Poor marketing techniques

When making comparison of FedEx and UPS, one can easily can find the deviation of the marketing expenditure in relation to its competitors, where the company is seen to make less investment on the section of branding and advertising activities. This has impacted the brands acceptance and popularity negatively.

Requirement of heavy investment

The transportation and logistics industry is largely driven by high investments and therefore establishment or expansion of the companies requires heavy investments and the expectations of return from the investment is not that immediate.

Limited market share growth

The logistics and transportation industry is one of the most competitive market, therefore market share growth is subjected to difficulties especially under consideration of the numerous small and large local competitors present in the market.

Dependence on regulatory bodies

Laws governing the operations of the logistics functioning do vary from one country to another, such laws have forced DHL to perform its operations as the regulatory norms stipulates or the local authorities. Variance in the regulation in the source and the destination places may be differentiate and therefore following and adopting to the different laws can be difficult for execution of business practices (Stefenson, 2004).

Dependence on external agencies

Due to the wide coverage of network for DHL in its operation, it has to depend on several of other local private agencies which it is forced to make collaboration with to ensure achievement of its goals of products and service delivery (Stefenson, 2004). This impacts the performance of DHL directly in regards to its effectiveness and therefore coordination becomes very crucial.

Opportunities realized in the SWOT analysis of DHL

E-commerce

The globe is seen to change its trends of conducting activities this is due to the changes that have been introduced by technological developments. Increment in the electronic shopping represents one of the potential opportunity which the company should focus on tapping this market as well. Researchers and forecast have predicted that E-commerce is considered as the future of shopping, therefore it is a motivating factor for the DHL to present and utilize this platform in delivering their products and services.

Emerging markets

DHL has played a significant role in exploring and setting foot in almost all the markets that are emerging. This is not enough the company is expected to derive measures that will be helpful in expanding and utilizing the potential presented in such markets. Thus developing the need for the company to focus customer international supply chain.

Inorganic growth

DHL operations are recognized globally and since the company contains a big name and reputation in the industry, it should therefore make utilization of the aspect of acquiring various local players with the target of expanding its reach within its target markets globally (Stefenson, 2004).

Threats realized within the SWOT analysis of DHL

Local players

One of the major threat that DHL is facing within the transportation and logistics industry is that the brand is suffering competition from the local courier players who appear to be operating a lower and penetrative prices. The local couriers have also received compliments from the customers on the ability to provide excellent services(Gerdemann, 2010).

Competition

The prime competitors of DHL is the FedEx and UPS which are presenting DHL into tough fight in all the markets it has already set foot. Despite the prime competitors there has also been development of several local brands which have also posed threat to the DHL mostly in its particular territory.

Economic slowdown

Due to economic crisis and emerging issues the industry of logistics is one of the most affected and hit hard when there exist an economic slowdown

Declination of traditional services

Development in technology has changed the way of life and changed the living styles of people. For instance traditional services such as letters and posts have been long foregone due to the advancement of technology affecting both the developed and developing economies modes of communications thus doing away with the posts and letters in their communications channels (Stefenson, 2004).

Financial analysis

Revenue

Table: 1

From  the table above it can be observed that DHL company during the last 3 financial periods revenues has grown more significantly.in 2017 DHL company posted 60444 million euros to 63341 million euros in 2019which was revenue up of 2.9%.this was contributed to by all the positive performance of  all the five divisions of the company. As the company continued establishing growth of revenues its main competitor the UPS Company continued outshining the company in terms of revenue generation which is mostly linked to the exploitation of the E-commerce in their marketing and sales strategies that was embraced by the UPS.

Factors promoting growth

Sustainability b focusing on the employees, the environment as well as the society

Among the targets that have been set by DHL apart from that of financial achievement, the firm has also put up measures targeting environmental protection and corporate social responsibility.

Employees ;the company had hired around 550,000 workers by the end 2019.this showing  a growth in the workforce at a rate of 2..5 % from 2015.the company also received recognitions as the most preferred employer by the “top employer”.

Environment

Within the past year the company achieved its objective which was increment of the carbon efficiency of 50 % by 2025.the carbon efficiency index realized by the end of 2019 was 35% this increasing the customer trust in the assurance of maintenance of the environment and preferring to use their product and services to help them fund their environment project in doing so the revenue of the company was boosted significantly.

Society

The company is seen to put the interests of the society along its operations where it has been involving itself in working as volunteers in several group activities and responding to disasters through disaster response team they have established lastly the team was deployed in Mozambique after the severe flooding. Such operations have won the trust of clients and fostered the reputation of the company thus increasing revenue generated.

Net profit margin

Table: 2

In the table2 above the two companies showed high net profit margin in the year 2017, the net margin are seen dropping within the preceding years.DHL company projects an increase in their net margin by 4.03%, 4.63% in 2020 and 2021 respectively.UPS indicates to be profitable than DHL as the amount of net margin shown is largely higher than that of the DHL Company. This is likely attributed to by the following factors;

Excellent financial position

UPS has the likelihood of access to a better finance background when compared to the DHL this enabling the company to make major investments in developing countries and identifications of new markets for their products for their products and services. The company is also purported to have made major investments in the innovation sector this rendering the advantages of using technological advancement to win the reputation of its customers  thus outshining their competitor DHL.

Both the companies have shown to be deteriorating in terms of their net profit margin gradually, this is mostly linked to massive competition that is being experienced within the logistics industry which has interested many companies to join the business. Economic slowdown has also impacted the profitability of the companies due to the economic crisis experienced globally affecting the conduction of their business operations affecting out their profitability ratios.

Return on Assets

Table: 3

Through calculation of Return on Assets one is able to evaluate how effectively a company has utilized its assets for generation of revenue. As shown within the last 3 financial years DHL has illustrated efficiency in the utilization of its assets for income generation till the financial year of 2019.the revenue traced was also attributed to by the U.S government incentive of lowering the tax relief to the corporate entities which boosted the generation of profits since some of the expenses had already been catered for by the government which is tax expenses. Within the same period the operations of the UPS which is regarded to be better in absolute terms along all the three financial years. The UPS also shown efficiency in their generation of profits from the utilization of assets maximally (MacGillavry and Sinyan, 2016). Despite the fall in the return on assets experienced in the year 2018 by a 1.18% rate when compared with 2017 financial period. The impact and results of the fall was minimum felt by the company operation since the return on assets had been fairly stable along the 9% mark. Efficiency of the companies in realization of profits after utilization of assets is mostly attributed to by the aspect incentives that have been introduced by some of the countries within which the companies operate. For instance the corporate tax reduction provided by the U.S government.

Return on equity

Table: 4

Return on equity is used in measuring the effectiveness of a company in generation of revenue using the funds provided by the stakeholders. High positive return on equity ratio show well utilization of the money that is provided by the stakeholders and the company is capable of generating profits from the equity it had accumulated. From the data in table 4 it can be seen clearly that the ROE rose from 14% to 18% in the financial year 2018 and then fell in the year 2019 to 9%.during the last three years there was no significant share issue that was recorded. Therefore the realization of the conclusion that the cause for the decline in return on equity was developed by the net income growth of the company which slowed the retained earnings. When comparing the UPS within the same financial period they showed ROE ratios which were greater than 100%,since the companies operation are largely funded by debts thus making the absolute values of the ratios to be irrelevant (MacGillavry and Sinyan, 2016). The changes that are shown by the return on equity for the last 3 financial periods generate a more accurate image of the effectiveness of the company towards the utilization of the owner’s equity for income generation. For the period between 2016 and 2018 the ROE ratio declined from795%to157 this was attributed to by significant increment of the company’s retained earnings. Although the company has showed availability of funds that are in the form of retained earnings the company has explicated less effectiveness in the usage of the funds in profits generation.

Efficiency ratios can have positive and negative impacts towards a business operation. For instance if a company has a low rate of liability turnover which can be subjected to deliberate payment delays past experience, resulting to the company facing denial of further credits. The desire of achievement of large asset ratio could subject the management into cutting down the necessary investments within stock for finished goods or fixed assets such reduced volumes cause delays on making of customers deliveries. Therefore presence of undue attention to the performance of the efficiency ratios may not be present in the long term desires and interests of the company.

Liquidity

Liquidity is used in the expression of the ability of any business entity payment of its liabilities when they fall due or even before they fall due. Such ability is influenced by several factors including the current assets and liabilities and cash resources. Most of the short term creditors have high interest in this analysis as well as the banking rate for evaluation of the interest they will accrue from the lending.to measure the level of liquidity for DHL Company we rely on the current ratio.by use of current ratio one is able to tell the users to what extent has the made maximization of its currents assets for payment of its current debts as well as other payables (MacGillavry and Sinyan, 2016). The computations involving quick ratio assumes the company’s inventory this regarding them inefficient for DHL as the company holds less inventory. The current assets for DHL retrieved were as follows

Table: 5 DHL current ratio

From the table it can be observed that the financial year 2017 had the highest current which declined in the preceding years 0.95 and 0.89 respectively. The decline in the ratios as shown is influenced by the increase of short term debts as well as decrease in the current assets. This creating an image of DHL Company to be involved in too much short term borrowings and reduced current assets. Within the same duration of operations UPS presented their current ratios as follows 1.18, 1.22, and 1.15 respectively. This indicating that UPS was in a better position to cater for its obligations when compared to DHL company this was due to; increasing their cash balances with long-term borrowing, taking fewer owner withdrawals and reinvestment of the revenue accrued back to the business operations, increment of the current assets using new equity investments, collection of  the outstanding accounts receivable, paying out some of their current liabilities and conversion of fixed assets into cash by making sale of the unused equipment (Cho et al., 2020).

Leverage

This are financial ratios that are significant in the measurement of the organization’s financial obligations, capital structure as well as the ability of the firm to meet such obligations. Leverage ratios focus on the ability of the firm from the short term and long term perspective of handling its obligations thus gaining more relevance compared to the liquidity ratios which focus on only short term obligations of the firm. Total liabilities for DHL Company for 2017, 2018 and 2019 were recorded as follows 38, 672, 50,470 and 52,169 million euros respectively. Their total equities stood at, 12, 903, 13, 873, and 14,392 respectively for 2017, 2018, and 2019 (Cho et al., 2020)s.

Table: 6 DHL Company Debt-Equity Ratio

A high debt to equity ratio shows an indication that the company is mostly financing it operations from debt for growth purposes. This scenarios shows out to the lenders and investors that their investment with such companies is risky since there is a possibility that the company will not be able to repay its dues in time or at all.

At the same point of time (2017, 2018, and 2019), 93.1, 43.4, and 15.4 were the respective debt equity ratios for UPS Company. The company has a higher leverage compared to DHL despite the ratios declining along. The company is found to be funding most of its operations using borrowed funds. The company is influenced to use much borrowing in their activities to meet the fact that industry requires an organization that is capital intensive which is used in development and generation of modification which are meant to curb the challenge of competition (Herlod,2017). The logistics industry conducting its operations globally requires a company that engages in such operation to be capital intensive to be able to meet the demands of their customers globally. This factors have the highest magnitude of having subjected UPS to much debts to meet the requirements of the competitive industry.

Debt ratio

They are financial ratios which to what percentage is the company’s asset funded through debt.it describes the ratio of total debt, which is total assets and long term liabilities.

Table: 7 DHL Debt ratio

The company’s total liabilities and total assets happened to be tallying and therefore projecting to a constant debt ratio in the 3 financial periods. A large proportion of the DHL assets was funded through borrowing. This develops a risky environment for creditors and investors who face the risk of loss for their investment in scenarios where the company becomes classified as default on debts, where the creditors get the first preference of liquidation(Herlod,2017).

Equity ratio

These are financial ratios which are used in indicating the relative proportion of the equity that has been applied in the financing of the organization’s assets. This components are frequently realized from the company’s statement of financial position and also the balancesheet.in other cases the ratio can be calculated by use of the market values where the company’s equities happens to be traded publicly.

Table: 8 DHL Equity Ratio

The ratio of the company from the table is recorded as 0.33, 0.27, 0.27.The ratios express that there was a decrease in the equity ratio in 2018 which remained constant in the following year. A company operating with an equity ratio value of less than0.5 is regarded as a leveraged company. With the highest case of leveraged company being considered as the one with a ratio of 0.50 and above, such company’s tend to gain more access to funding from their shareholder’s equity more than they do from debts.

Efficiency

When making analysis of an organization potential investment, it is significant for one to make evaluation of the firm’s financial operation along every angle and perspective. Efficiency ratios are used to make comparison on what the firm owns in terms of its sales and profit performance as well as inform of investors and about the organization ability to utilize what it has make the highest profit possible to the benefits of the shareholders and the owners(Herlod,2017).

Table: 9 DHL Total Asset Turnover

The company shows increase in efficiency within the financial years of its operation but the ratios are still low indicating that the company has made priorities on decreasing costs and increasing revenues.

Business performance

The companies projected a prosperous business environment in 2017 and part of 2018, the business operations in 2019 were also not very promising.DHL company embarked on application of the principle power of simplicity, through which the executives were obliged with the responsibility of ensuring they utilized the dozen of opportunities that presented themselves for the benefits of the owners and the shareholders. For instance the decision of convincing the company to make adjustments from traditional shipping and focus on international express service was one of the millionaire opportunity that the executive projected that would make the company to realize heavy profits, but was subjected to various challenges of making structural changes and convincing of the stakeholders how the idea was more profitable that the traditional one which they were using (MacGillavry and Sinyan, 2016).

Strategy execution

Within every second each day there is an average of 17 direct interactions taking place involving a DHL employee and a client. The company is defined by employees achieved by customer experience. Through this recognition the company has emulated application of the focus strategy for achievement of its objectives defined as the four link chain of success Motivation of employees:

Linked with provision of greater service

Resulting to loyal clients

And development of profitable network

The adoption of the implied changes was not an overnight activity for the firm since the ideas were subjected to rejection and negative perception from the employees.to counter this the managed organized a series of intranet videos followed by uncountable town hall meetings established globally with the main agenda being sharing of the new strategy.

People driving profit

The company investing on people has expressed more benefits to the firm.by increasing their market share, employee and customer satisfaction. Efforts by the company to motivate its employees has made the company revive from operating billion losses to realization of more than 2 billion dollars profitability that were recorded by the company’s history  in 2018.the achievement can be acknowledged to the focus strategy which has remained to consistent along the years of the company’s operation, to some extent the company even utilized using same internal strategy to its managers making adjustments on dates and timeline but main focus being the core element (Cho, 2020). The growth of DHL operations can also be credited to the principle of focusing on what they do best, making aggressive investment in the right culture and ensuring that their management is accessible and visible.

DHL Company has established exemplary performance in the last 3 financial years, with the company reaping significant revenue margin growth which is driven by strategies and structures and tax incentives offered by the government have influenced the growth of the entity. The company has also been capable of meeting both its short term and obligations implying that the company has the potential of evading scenarios of being involved in credit risk comparative to its competitors such as the UPS which has heavy reliance on debts to fund its operations. The concentration of the company in the innovation sector has projected the relevance of the company globally.

There are some aspects that require improvement and others which have to be foregone to ensure that the company is capable of achieving its vision and mission objective, this include;

Extensive exploration of new markets

The logistics industry being mostly dependent on global market the company should ensure they develop measures that will ensure they are capable of accessing more market appeal, by continuously adopting its unique characteristics of serving its clients which distinguishes the entity from other competitors within the industry. Technology diversity which ensures the company is able to adopt all the new measurement that are posed by technology, ensuring they keep in touch with their clients frequently.The company is also expected to be more aggressive when utilizing the resources of its own and that of the shareholders to ensure they increase the reputation they achieve from the clients, this is by exploring new markets and intensive awareness using all the channels available to ensure their impact is felt globally and this boosting their customer levels subjected to generation of more revenue.

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