Both internal and macroeconomic factors impact the financial position of a company. Therefore it is imperative to analyses the internal factors as well as external factors. Macroeconomic factors with industry and the economy as a whole affect company operations and United Parcel Service Inc. (UPS) is no exception. The company is affected by various macroeconomic factors, including changes in interest rates, issues in the stock market and other external factors present in the market.
The effect of the changes in the interest rate on the company’s performance can be analyzed by looking at the implication of the changes in the interest rate on the present value of free cash flow. Assuming an interest rate of 8%, the total present of three free cash flow as determined in excel is $61.45 million. Table 2 and 3 in the same excel sheet shows the effect of changes in the interest rate on the company’s present value.
It is evident from these tables that a change in the interest rate impacts the present value of free cash flow. Adecrease inthe interest rate from 8% to 5% leads to an increase in the present value from $61.45 million to $65.21 million. On the other hand, an increase in the interest rate from 8% to 15% leads to a decrease in the free cash flow present value from $61.45 million to $53.94 million. The present value of free cash flows is used to evaluate a project’s profitability and hence a company’s financial performance. And if changes in interest rates affect present value, then we can conclude that interest rates fluctuation affects the financial position of a company.
In addition to interest rates, factors in the stock market can also impact a company’s financial position by impacting its portfolio management. Issues in the stock market normally cause the rise and fall of a company’s stock prices. One of the issues in the stock market that affects stock valuation number is the demand and supply in the stock market. When the demand for a certain stock is higher than its supply, then the price of the stock will rise. However, if the supply is higher than the demand, then, the stock price will fall (Csiszar, 2019). A company with stocks trading at a high price are considered more valuable and are capable of raising capital to expand and improve its operations.
Both internal and external factors influence the demand for stock in the market. A company that is generating high profits is considered a valuable company, and hence the demand for its stock is high. Besides, a company’s stock demand is also influenced by a macroeconomic factor, such as the overall performance of the economy (Csiszar, 2019). For example, during a recession, demand for stocks is generally low, driving the stock prices down. On the other, when the economy is performing well, investors are more liquid, and therefore the demand for stocks rises, thereby increasing the stock prices. When a company sells its stocks at a higher price, it can raise more funds enabling it to increase productivity and ultimately improve its financial position. Although an external factor. Stock market behavior influences a company’s financial performance and therefore, should be considered when analyzing the company’s financial performance.
Other external factors that may impact UPS’s financial performance include competition, political factors and environmental factors. Competitors are external factors that the company has no control over but affects its performance. Stiff competition can lead to a decrease in market share, thereby leading to reduced revenue volumes. UPS competes with different logistic provides both locally and internationally. The company’s main competitors include freight forwarders, express companies, air couriers and postal services companies (United Parcel Service Inc., 2018). Another external factor that affects UPS operations is the political factor. The company operates in different countries and is therefore affected various laws and regulations that govern these countries. For example, the company must adhere to various customs laws within countries in which they operate (United Parcel Service Inc., 2018). Failure to adhere to such laws and regulations can negatively impact the company’s operations, thereby impacting its financial position. The company may be forced huge sums of money for penalties and interests if it fails to adhere to these regulations. Such payments reduce the company’s cash flows, making it hard to operate efficiently and effectively.
Various environmental laws and regulations also influence UPS’s activities. The company is subject to various environmental laws, including pollution prevention, proper storage, handling and proper waste disposal (United Parcel Service Inc., 2018). Adhering to some of these laws may increase the cost of operations and therefore, must be taken into consideration when analyzing the financial position of the company. In a nutshell, external factors are just as important as internal factors and must, therefore, be incorporated in the analysis of a company’s financial performance.
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