04-801 HOMEWORK 3 Name: NIZEYIMANA Jean Paul Andrew ID: jnizeyim Course: Business Economics COMPANY: Union Pacific

Corporation (UNP)

0. INTRODUCTION The Union Pacific Railroad (reporting mark UP) (NYSE: UNP), headquartered in Omaha, Nebraska, is the largest railroad network in the United States. It has more than 44,000 employees, more than 8,000 locomotives, and runs on 31,900 route-miles in 23 states west of Chicago and New Orleans [1]. In this work we are going to analyze the Union Pacific Corporation based on its financial statements. This analysis will focus on its stocks beta , profit margin, income, balance sheet, cash flow, EBIT, EBITDA and EPS. 1. UNP stocks beta Union Pacific Corporation stocks beta is 1.10 [2]. This indicates that UNP has a higher sensitivity to market fluctuations because its beta is greater than 1. For we know that a market as a whole has a beta of 1 [3]. UNP is more risky because it has higher price volatility than the whole market. 2. UNP Profit margin The profit margin of UNP is 18.84% as fiscal year end of 2012 [4]. This profit is used to analyze the profitability of UNP; it shows how much out of a dollar of sales UNP keeps in earnings. Saying that the profit margin of UNP is 18.84% means that UNP has a net income of $0.1884 for each dollar of sales. 3. Income, Balance sheet and cash flow a) Income The total revenue (this is the money generated) of UNP has increased from $14.1B in 2009 to $19.6B in 2011. This shows that UPN has well performed to increase its revenue. When comparing the cost of revenue (expenses) and the revenue there is a big difference, for example in 2011 the total revenue was $13.9B greater than cost of revenue. From this we can say that UNP has a great gross profit (which is the difference between the total revenue and the cost of revenue).

This gross profit has increased from $10.7B in 2009 to $13.9B in 2011. Looking at the net income (profit after all expenses have been paid), we can see that UNP improved from $1.9B in 2009 to $3.3B in 2011[5]. b) Balance sheet On the balance sheet, the first thing we notice is that UNP has $1.2B in cash and no short term investments. We can see also that UNP had long term debt of $2.09M in 2011. To realize if this long term debt are helping UNP to survive, lets compare the current liabilities which in 2011 was $3.3B to cash; we can see that UNP does not have the cash needed to pay off its current liabilities. The total cash per share of UNP is $2.27M. The total of the balance sheet has improved from 2009 to 2011 (from $42.2B to $45B), and we can see that the long term debt has been declined from 2009 to 2011 (from $9.6B to $8.6B) and its total debt / equity is 45.26 which is good. [6] c) Cash flow This consists of operating activities, investing activities and financing activities. UNP cash flows provided by (used in) operating activities has increased from 2009 to 2011(from $3.2B to $5.8B), this involves providing services. For cash flows provided by (used in) investing activities, it was negative for the period from 2009 to 2011 this is the same for cash flows provided by (used in) financing activities. [7] For these negative numbers we can imagine that UNP is servicing debt or that is making dividend payments or stock repurchases. This is good news for someone who wants to invest in this Company. 4. EBIT, EBITDA and EPS a) EBIT: UNPs Earnings before interest and taxes has improved from 3.5B in 2009 to $5.8B in2011 [8]. This is good for Operating Income because it makes Earnings look better for UNP because we have seen that it carries a lot of long term debt ($8.6B). b) EBITDA: it was 8.50B in 2012 [9], this gives a figure closer to actual cash flows for depreciation and amortization have been removed from earnings because they are non-cash entities. c) EPS: this shows how much money is available for the stockholders (shareholders). UNPs ENP was $8.27M in 2012 [10], this is a very good thing which could influence investors. EPS is showing how the UNPs profitability is. CONCLUSION This analysis has helped us to know how UNP is performing; we have seen that UNP is making money. For its revenue, we realized that UNP is bringing in more money than it spends. Looking at its income statement, we can see that UNP is increasing sales and profitability. From this analysis, I cannot hesitate to buy shares (invest) in UNP.

REFERENCES

[1] ^ "Company Overview". Union Pacific Corporation, retrieved January 31, 2013. [2] http://finance.yahoo.com/q?s=UNP , retrieved January 31, 2013 [3] Idea from course lecture, 04-801 Business Economics by Suzana Brown, CMU-R, Spring 2013 [4] http://finance.yahoo.com/q/ks?s=UNP+Key+Statistics , retrieved January 31, 2013 [5] http://finance.yahoo.com/q/is?s=UNP+Income+Statement&annual, retrieved January 31, 2013 [6] http://finance.yahoo.com/q/bs?s=UNP+Balance+Sheet&annual , retrieved January 31, 2013 [7] http://finance.yahoo.com/q/cf?s=UNP+Cash+Flow&annual , retrieved January 31, 2013 [8] http://finance.yahoo.com/q/is?s=UNP+Income+Statement&annual , retrieved January 31, 2013 [9] http://finance.yahoo.com/q/ks?s=UNP+Key+Statistics , retrieved January 31, 2013 [10] http://finance.yahoo.com/q/ks?s=UNP+Key+Statistics , retrieved January 31, 2013