United Parcel Service Inc. (NYSE: UPS) is the largest air delivery and freight services company in the world. The company had a market cap of $92 billion as of April 2016. UPS has high financial leverage and a capital structure that draws a relatively small amount of financing from equity capital. Rising short-term debt and a reduction in shareholder equity value due to an actuarial comprehensive loss were the primary drivers of increasing leverage in 2014 and 2015.

Equity Capital

Equity is the portion of capital structure that is sourced from the issuance of ownership shares or from profits to which stockholders have a claim. When analyzing a balance sheet, the book value of shareholder equity is displayed at the bottom, usually broken into several items, such as common stock, retained earnings and additional paid-in capital. As of December 2015, UPS had total shareholder equity of $2.5 billion, consisting of $6 billion of retained earnings, $3.5 billion of accumulated other comprehensive loss, $9 million of common stock at par value, $51 million in treasury stock and $51 million of deferred pension obligations.

UPS' 2015 equity capital value of $2.5 billion was higher than the 2014 level of $2.2 billion, though both years were well below the 2013 value of $6.5 billion. Retained earnings partially contributed to this reduction, falling from $6.9 billion in 2013 to $5.7 billion in 2014, before rising slightly in 2015. The most significant factor reducing shareholder equity was growth of accumulated other comprehensive loss, which was driven primarily by an actuarial loss in unrecognized pension and post-retirement benefits that occurred in 2014.

Debt Capital

Debt is the portion of the capital structure provided by entities with no ownership stake of the firm. Debt financing is provided in the form of bonds, loans and notes, the value of which can be found in the liabilities section of the balance sheet. As of December 2015, UPS had total debt of $14.3 billion, consisting of $11.3 billion of long-term debt and $3 billion of current maturities of commercial paper. UPS' long-term debt was comprised of $7 billion of various fixed-rate senior notes, $700 million of 8.375% debentures, $768 million in pound sterling notes and other smaller obligations. As of December 2014, UPS had total debt of $10.8 billion, roughly flat relative to $10.9 billion in 2013. While the company's long-term debt increased from $10.8 billion in 2013 to $11.3 billion in 2015, the most significant expansion in debt was commercial paper, which rose from $772 million in 2014 to $3 billion in 2015.

Financial Leverage

Leverage refers to the amount of debt in a company's capital structure, and it often displays that relationship as a ratio or percentage. Total-debt-to-capital is a leverage ratio commonly used in the analysis of capital structure, and it excludes operating liabilities from its calculation. As of December 2015, UPS had a total debt-to-capital ratio of 0.85. This was slightly above the 2014 value of 0.84 and well above the 0.62 of 2013. The 2014 actuarial comprehensive loss and the increase in short-term debt were the most significant catalysts behind the increase in leverage. As of February 2016, competitor FedEx Corporation (NYSE: FDX) had a debt-to-capital ratio of 0.37.

Enterprise Value

Enterprise value (EV) is a popular measure of a firm's total value, combining market values for equity and debt capital. By combining equity and debt values, EV is capital-structure-neutral. This is a useful characteristic for investors trying to compare companies in different growth stages or industries, a challenge that often appears in the context of mergers and acquisitions. As of April 2016, UPS had EV of $103 billion. The company's EV was relatively volatile in the years leading up to 2016, though it trended generally upward from $84 billion in April 2013 to $108 billion in December 2015. Turmoil in U.S. equity markets and fluctuating capital structure led to the shifts in EV for EPS.

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