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Forum post 600-words


Open Posted By: taniatemoor Date: 16/08/2020 Academic Level: High School Paper Type: Report Writing

  

I need a 600 word response to the following forum:

Our class discussion on the USPS is based on these materials:

2015 08 24 Case Questions & Links.pdfPreview the documentView in a new window
2015 08 24 Links & Financials.xlsxPreview the documentView in a new window
(same information as first file, but links are clickable)

The information you need for this discussion is contained in these files. You don't need to go outside of this material, although you can, if you find something relevant you'd like to bring in.  If you bring in outside sources, please cite them (or link to them).

1) What do the USPS’s financials tell you about whether or not (a) it creates economic value, (b) is more or less efficient than UPS or FedEx, and (c) needs to reexamine its business model? Explain your answer.

A couple comments to get you started on this:

Economic Value:

Economic value is created when a producer combines inputs such as labor, capital, raw materials, and purchases components to make a product the perceived benefit B of which exceeds the cost C incurred in making the product. The economic value created is the difference between the perceived benefit and cost, or B less C.

Public Park Example:

All the residents in a particular neighborhood get together and decide to build a neighborhood park. They determine that the cost of building the park ($450,000) and maintaining it for a year ($50,000) comes to $200 per resident (2500 residents). Because the individuals in the neighborhood believe that they will each derive $300 in value annually from the park, they decide to build it. Everything goes as planned. In the first year, the neighborhood collects $500,000 from residents, and then builds the park. Revenue from the park in Year 1 is $0. From a accounting perspective, therefore, the park “loses” $50,000 (maintenance costs) and the cost of the fraction of the park that is "used" during the year (let's assume a 30-year amortization, so $15,000) for a total loss of $65,000 in its first year of operation.
 

Has any economic value been created? Why or why not? There is a nearby for-profit water park that was profitable during the same time period. Is the neighborhood park more or less “efficient” than this water park? Finally, does the neighborhood need to rethink its business model as a result of its $65,000 dollar loss in Year 1?
 

In Year 2, the neighborhood decides to charge $1 per day for access to one part of the neighborhood park--the splash pad. All other areas of the park remain open to the public. In Year 2, therefore, the neighborhood realizes $20,000 in revenue. The cost to maintain the park in Year 2 remains the same ($50,000). This results in a “loss” of $45,000 for Year 2. Did the park create more or less economic value in Year 2 than in Year 1?

Think about how you would answer these questions about this neighborhood park, then think about how this might apply to the USPS.

2) What positive externalities does USPS produce, and how has the value of these externalities changed over time?

3) Explain how you would calculate the economic value created by the USPS, taking into account the positive externalities it produces.

Here's a few comments:

The USPS has had $45 billion or so in cumulative accounting losses over the past four decades or so (see its financials). Was what the USPS produced over the past four decades worth $45 billion to the taxpayers? Take a for-profit business like FedEx. We know the value of the company’s inputs; that’s easy, we can look at their expenses. Now, what is the value of what they produced? Let’s assume for a second that what they produced is a private good with no externalities. Let’s also assume that the value of its services to customers matched or exceeded the amount its customers paid for its services. This is a reasonable assumption, because if it weren’t the case, customers wouldn’t voluntarily engage in transactions with the company. So, what is the value of what FedEx produced? In this case, it would be its revenue plus the difference between what customers paid for Fedex’s services and the value they placed on those services. This difference is called consumer surplus. So the value of what FedEx produced in a given year would be its revenue plus the consumer surplus it generated. To see if they created any economic value, you would subtract expenses from this total.
 

Bonus questions: Where does profit enter this equation? Note the following: (Revenue + Consumer Surplus) - Expenses = (Revenue - Expenses) + Consumer Surplus = Profit/Loss + Consumer Surplus = Economic Value Created. Why isn't profit/loss, by itself, enough to determine if economic value has been created? Why isn't profit/loss enough to determine if an organization is "efficient" or not?

For example, assuming that everything stays the same with respect to its operations and its volume of business, how FedEx prices its goods and services doesn’t change the amount of economic value it creates. If FedEx raises its prices (and its volume of business stays the same), it may increase its profits, but it would reduce consumer surplus by the same amount, so it would be a wash. What if FedEx lowered its prices below its costs? It would lose money, but the decline in revenue would be offset by a corresponding increase in consumer surplus, so the economic value created by the company would, again, remain the same. In this example, assuming the volume of business stays the same, FedEx’s pricing decisions affect the allocation of value—i.e. how the value created by the company is split between itself and its customers—but it doesn’t effect the overall amount of value the company creates.

The USPS doesn’t produce a private good, like we assumed in the case of FedEx. What it produces is a merit good, defined as a good or service that has both private benefit and associated positive externalities. This adds another layer of complexity to a strategic assessment of the USPS.

4) What capabilities and competencies does the USPS have that would enable it to create economic value by offering financial services? Would creating economic value this way “fit” with the USPS’s overall purpose, culture, and history? Why or why not? Explain.

5) If the USPS were to begin offering financial services, how would it impact its revenue, the consumer surplus it creates, and the positive externalities associated with its operation? Discuss potential impact on each of these three value components.

6) Should the USPS begin offering financial services? Why or why not?


Category: Accounting & Finance Subjects: Finance Deadline: 24 Hours Budget: $60 - $90 Pages: 2-3 Pages (Short Assignment)

Attachment 1

THE UNITED STATES POSTAL SERVICE: PROFIT, VALUE CREATION,

AND FINANCIAL SERVICES

ASSIGNMENT QUESTIONS

Question 1: What do the USPS’s financials tell you about whether or not (a) it creates economic

value, (b) is more or less efficient than UPS or FedEx, and (b) needs to reexamine its business

model? Explain your answer.”

Question 2: What positive externalities does USPS produce, and how has the value of these

externalities changed over time?”

Questions 3: Explain how you would calculate the economic value crated by the USPS, taking

into account the positive externalities it produces.”

Question 4: What capabilities and competencies does the USPS have that would enable it to

create economic value by offering financial services? Would creating economic value this way

“fit” with the USPS’s overall purpose, culture, and history? Why or why not? Explain.

Question 5: If the USPS were to begin offering financial services, how would it impact its

revenue, the consumer surplus it creates, and the positive externalities associated with its

operation? Discuss potential impact on each of these three value components.

Question 6: Should the USPS begin offering financial services? Why or why not?

2

Exhibit 1: Statement of Operations

3

Exhibit 2: Balance Sheets

4

Exhibit 3: Information Sources

Attachment 2

Information Sources

The USPS - Case Information Sources
About the USPS
Main http://about.usps.com/
Financials http://about.usps.com/who-we-are/financials/welcome.htm
History http://about.usps.com/who-we-are/postal-history/welcome.htm
5-Year Plan http://about.usps.com/strategic-planning/five-year-business-plan-2012-2017.pdf
2014 10K http://about.usps.com/who-we-are/financials/10k-reports/fy2014.pdf
The United States Postal Service: An American History 1775-2006
PDF http://about.usps.com/publications/pub100.pdf
Smithsonian National Postal Museum
Main http://postalmuseum.si.edu/
Commentary
Heritage Foundation http://www.heritage.org/research/reports/2013/10/can-the-postal-service-have-a-future
Heritage Foundation http://www.heritage.org/research/reports/2011/09/youve-got-no-mail-is-the-end-near-for-the-postal-service
Econompic Policy Institute http://www.epi.org/publication/heritages-ruinous-recommendations-postal/
Slate http://www.slate.com/articles/business/crosspollination/2014/03/postal_banking_usps_can_and_should_start_offering_financial_services.html
USPS Newsroom http://about.usps.com/news/national-releases/2012/pr12_023.htm
Forbes http://www.forbes.com/sites/adamhartung/2011/12/06/why-the-postal-service-is-going-out-of-business/
Minyanville http://www.minyanville.com/business-news/editors-pick/articles/postal-service-usps-post-office-post/8/3/2012/id/42951
Financial Services (USPS Office of Inspector General)
Financial Services - White Paper https://www.uspsoig.gov/sites/default/files/document-library-files/2014/rarc-wp-14-007.pdf
The Road Ahead https://www.uspsoig.gov/sites/default/files/document-library-files/2015/rarc-wp-15-011.pdf
PEW Conference on Financial Services and the USPS
Main http://www.pewtrusts.org/en/about/events/2014/financial-services-and-the-post-office
Important Concepts (Wikipedia)
Market https://en.wikipedia.org/wiki/Market_(economics)
Public Goods http://en.wikipedia.org/wiki/Public_good
Merit Goods http://en.wikipedia.org/wiki/Merit_good
Consumer Surplus https://en.wikipedia.org/wiki/Economic_surplus
http://www.heritage.org/research/reports/2011/09/youve-got-no-mail-is-the-end-near-for-the-postal-service http://www.slate.com/articles/business/crosspollination/2014/03/postal_banking_usps_can_and_should_start_offering_financial_services.html http://about.usps.com/news/national-releases/2012/pr12_023.htm http://www.forbes.com/sites/adamhartung/2011/12/06/why-the-postal-service-is-going-out-of-business/ http://www.minyanville.com/business-news/editors-pick/articles/postal-service-usps-post-office-post/8/3/2012/id/42951 https://www.uspsoig.gov/sites/default/files/document-library-files/2014/rarc-wp-14-007.pdf https://www.uspsoig.gov/sites/default/files/document-library-files/2015/rarc-wp-15-011.pdf http://www.pewtrusts.org/en/about/events/2014/financial-services-and-the-post-office https://en.wikipedia.org/wiki/Market_(economics) http://en.wikipedia.org/wiki/Public_good http://en.wikipedia.org/wiki/Merit_good http://about.usps.com/ https://en.wikipedia.org/wiki/Economic_surplus http://about.usps.com/publications/pub100.pdf http://about.usps.com/who-we-are/financials/welcome.htm http://about.usps.com/who-we-are/postal-history/welcome.htm http://about.usps.com/strategic-planning/five-year-business-plan-2012-2017.pdf http://about.usps.com/who-we-are/financials/10k-reports/fy2014.pdf http://postalmuseum.si.edu/ http://www.heritage.org/research/reports/2013/10/can-the-postal-service-have-a-future http://www.epi.org/publication/heritages-ruinous-recommendations-postal/

Statement of Operations

United States Postal Service
Statements of Operations (in millions)
Year Ended September 30,
2014 2013 2012
Revenue
Operating revenue $ 67,764 $ 67,195 $ 65,079
Other revenue 66 123 144
Total revenue 67,830 67,318 65,223
Operating expenses
Compensation and benefits 46,000 46,708 47,689
Retiree health benefits 8,685 8,450 13,729
Workers’ compensation 2,554 1,061 3,729
Transportation 6,586 6,735 6,630
Other operating expenses 9,353 9,174 9,187
Total operating expenses 73,178 72,128 80,964
Loss from operations (5,348) (4,810) (15,741)
Interest and investment income 24 24 25
Interest expense (184) (191) (190)
Net loss $ (5,508) $ (4,977) $ (15,906)
Soure: 2014 10-K; See accompanying notes to the financial statements.

Balance Sheets

United States Postal Service
Balance Sheets (in millions)
September 30, September 30,
2014 2013
Assets
Current Assets:
Cash and cash equivalents $ 4,906 $ 2,326
Restricted cash 246 312
Receivables, net 930 984
Supplies, advances and prepayments 122 122
Total current assets 6,204 3,744
Property and equipment, net 16,338 17,512
Other assets 420 385
Total assets $ 22,962 $ 21,641
Liabilities and Net Deficiency
Current Liabilities:
Compensation and benefits $ 1,506 $ 1,529
Retiree health benefits 22,417 16,766
Workers’ compensation costs 1,320 1,322
Payables and accrued expenses 2,023 1,913
Deferred revenue-prepaid postage 3,064 2,993
Customer deposit accounts 1,191 1,229
Other current liabilities 1,221 1,131
Current portion of debt 9,800 9,800
Total current liabilities 42,542 36,683
Workers’ compensation costs, noncurrent 17,102 15,918
Employees’ accumulated leave, noncurrent 1,982 1,982
Other noncurrent liabilities 1,467 1,681
Noncurrent portion of debt 5,200 5,200
Total liabilities 68,293 61,464
Net Deficiency:
Capital contributions of the U.S. Government 3,132 3,132
Deficit since 1971 reorganization (48,463) (42,955)
Total net deficiency (45,331) (39,823)
Total liabilities and net deficiency $ 22,962 $ 21,641
Source: 2014 10-K; See accompanying notes to the financial statements.