Acc 411 (Financial Statement Analysis)

University of Bahrain
College of Business Administration

Department of Accounting
Financial Statements Analysis:

Transportation Industry
Done by:
Ayesha Fazal Amin Khan
Fatema Shakil Ahmed Azmi
Shameem Ebrahim Meethale
Naveed Karim Baksh
20136183
20135089
20126301
20124656
Section 03
Supervised by: Dr. Entessar
Table of Contents
1. Introduction ........................................................................................................................4
Union Pacific Corporations ..........................................................................................................5
Norfolk Southern Corporation .....................................................................................................6
2. Six Steps in Financial Statement Analysis .......................................................................7

2.1 Identify the Economic Characteristics and Competitive Dynamics in the Transportation
Industry.........................................................................................................................................8
2.1.1 Value Chain Analysis .................................................................................................8
2.1.2 Porters Five Forces Classification .............................................................................9
2.2 Identify Company Strategies ............................................................................................10
2.3 Cash Flow Analysis ..........................................................................................................12
2.4 Profitability Analysis ........................................................................................................19
2.4.1 Earnings per Share ....................................................................................................19
2.4.2 Common Size Analysis .............................................................................................22
2.4.2.1 Vertical Analysis ........................................................................................22
2.4.2.2 Horizontal Analysis ...................................................................................30
2.4.3 Percentage Change Analysis .....................................................................................38
2.4.4 Rate of Return Ratios ................................................................................................42
2.5 Risk Analysis ....................................................................................................................49
2.6 Other industry related ratios .............................................................................................54
3. Relating the Analysis ......................................................................................................57

4. Railroad Accounting: Strengths and Weaknesses ........................................................59
5. Conclusion and recommendation ...................................................................................60
6. Forecasting........................................................................................................................62
7. Appendix A .......................................................................................................................63
8. Appendix B .......................................................................................................................72
9. References & Work Distribution ...................................................................................78
Introduction
The rail transportation industry in the United States plays a vital role in
its economy. They provide rail transportation of passengers and imports
and exports in containers, and for the shipment of natural resources like
coal and oil. The rail industry has come across a lot of turmoil due to
transforming economic demands and due to rise of buses and air
transport. However, it still remains the most reliable mode of transport
as it is better organized, cheap, and can carry heavy and bulky goods
over long distances.
The industry consists of many companies that control railroads across
the United States. They are classified into large railroads or Class 1
railroads, and regional and local line-haul railroads. For our term project,
we will be comparing two Class 1 railroads, Norfolk Southern Railway
and Union Pacific Railroad. We will talk about the industry economics
and determine the strategies implemented by these companies.
Moreover, we will use their financial statements for the years 2010 up to
2014 to conduct various types of analysis (Cash Flow analysis, Common
Size analysis, Liquidity and Solvency ratios etc.)
With the help of analyzing the statements and relevant information about
the industry, the report will communicate the considerable advantages
and drawbacks of the two companies and provide explanations wherever
needed.
Lastly, through the report we will observe the outlook of the companies
and henceforth advocate which of the two companies is the best.
Union Pacific Railroad

The Union Pacific Railroad was founded in 1862 by Abraham Lincoln.
The company expanded in the following decades and became prominent
because of its devotion to safely transporting products across the country
and to operate ethically.
Union Pacific Corporation is one of Americas major transportation
companies. Its main operating company, Union Pacific Railroad is North
Americas leading railroad franchise. It is a Class 1 freight railroad that
manages around 9,000 locomotives, traversing over 32,000 miles in 23
states across two-thirds of the United States.
They ship a wide variety of things ranging from agricultural products,
automobiles, food and forest products, coals and chemicals etc. An
advantage of this particular railroad is that its shipping facilities are not
limited to its large-scale system map. They coordinate shipments beyond
their reach with other railroads and provide intact door-to-door services.
Union Pacific emphasizes that it provides the most systematic,
environmental friendly transportation solutions to its customers today.
Norfolk Southern Railway

The Norfolk Southern Railway was established in 1894 and was known
as the Southern Railway. It became the fourth oldest Class 1 railroad in
North America, after Union Pacific Railroad, Canadian Pacific Railway
and Kansas City Southern Railway. The railroad was renamed to
Norfolk Southern Railway in 1990 to reflect its parent organization,
Norfolk Southern Corporation.
Norfolk Southern is a leading transporter of domestic and export coal.
Coal transported by Norfolk Southern is thus exported to steel mills and
power plants around the globe. The company also transports auto parts
and completed vehicles. At the end of 2012, it was found out that
transportation of coal and iron ore made up 26% of the total operating
revenue of Norfolk Southern while intermodal transportation comprised
20% of the total amount.
The company is known for developing new safety initiatives and
providing reliable transportation services.
Six Steps in Financial Statement

Analysis
We will follow a sequence of six interrelated steps to analyze the
financial statements of Norfolk Southern Railway and Union Pacific
Railroad. These steps in order are:
1. Identify the economic characteristics and competitive dynamics in
the transportation industry.
2. Identify company strategies.
3. Assess the quality of the financial statements.
4. Analyze profitability and risk.
5. Project future financial statements.
6. Value the firm.
1. Identify the Economic Characteristics and Competitive

Dynamics in the Transportation Industry
The railroad industry is generally a convenient measure of the
underlying North American economy growing at a relatively faster rate
over the last few years. In 2014, the main features of interest have been
the increasing crude-by-rail trend, rail consolidation, stronger broadbased volume growth and network congestion problems. These key
features have been beneficial to the growth of earnings in 2015.
1.1 The Value Chain Analysis:

The value chain of an industry is the order or chain of activities involved
in the creation, manufacture and distribution of its products and services.
Route
Acquisition
Construction
Track
Stock
Planning
Of Land
Work
Installation
Supply
Supply of rail
facilities &
equipment
Train control
Railroad
Management
Operations
Maintenance
Here, the value chain can be divided into two parts; groundwork and
transportation services. Groundwork involves route planning and
investment decisions, track installation and maintenance. On the other
hand, transportation services include rolling stock supply, train control
management and railroad operations.
1.2 Porters Five Forces Classification Framework Applied to the

Railway Industry:
Supplier Power: High
Railway companies depend
on only a few domestic and
international suppliers of high
horsepower locomotives and
rail facilities. If one of these
suppliers discontinues
manufacturing locomotives,
the companies could face
difficulty.
Threat of New Entrants:

Low
There are high barriers to
entry, including huge
amounts of cost required to
acquire land and
constructing railroad tracks.
These factors make it hard
for new entrants to enter the
industry.
Industry Rivalry: High

The industry faces diffused
rivalry as there are many
railway companies
operating across North
America. They compete
actively to gain market
share and to ship
commodities at cheaper
rates.
Buyer Power: High

Customers face many
options when it comes to
shipping freight through trains
as there are many trains that
transport similar goods such
as agricultural products, coal,
industrial products and
intermodal. Therefore, they
have high buyer power.
Threat of Substitutes:
Low
Trains can transfer bulky
goods over long distances
in a short period of time.
Main substitutes involve
trucks and air courier
services. The threat of
substitutes is relatively
low.
1.3 Strategies Employed by Union Pacific Railroad and

Norfolk Southern Railway:
The strategies used by a particular company depend on its economic
environment. Companies employ various strategies to distinguish their
products or services from other companies in the same industry. Both
Union Pacific and Norfolk Southern provide similar services; hence they
both seem to be following an undifferentiated low-cost leadership
strategy which is why they will have relatively low profit margin
(discussed later in profitability analysis). This is because they offer
services at low prices and hence achieve higher sales volume.
Union Pacific implements the following strategies:
It provides new transportation solutions for agricultural goods, like
the coast-to-coast refrigerated produce service that transports
produce from production regions to consumption areas.
It transports coal to industrial, utility and export markets. Through
their geographic reach and connections, they manage to transport
coal to electric plants and facilities across the United States.
They provide logistics solutions for shipping finished vehicles and
automotive parts. They distribute imported vehicles from Gulf of
Mexico and the West Coast as more manufacturers are locating
facilities across the border.
They use multi-modal transportation solutions for domestic and
international freight and are committed to offering truckcompetitive rates and services schedules.
They have sales coverage in Mexico and throughout the United
States as well as an International Customer Service Center (ICSC)
with expertise in border processes, international freight handling
and the Mexico rail system.
10
As for Norfolk Southern, it exercises the following strategies to keep its

business stable:
Norfolk Southern controls a wide network of intermodal that
provides direct accessibility to equipments and containers to ensure
goods are shipped reliably and safely.
It operates the largest coal loading pier in Norfolk, Virginia. For
customer convenience, Norfolk Southern offers an index that
includes all origin stations and is based on the names of coal mines
and numbers.
It also provides the government with efficient and reliable shipping
solutions by offering lower rail rates as it has numerous Trans load
locations.
It serves 79 paper mills and is planning on expanding its business
into the Northeast and Midwest.
The Waste Line Express which is a private-public partnership
between Norfolk Southern and the Roanoke Valley Resource
Authority, uses rail transportation to link a solid-waste transfer
station and a landfill; emphasizing safety and protection of the
environment.
Norfolk Southern uses its Thoroughbred Bulk Transfer facilities
that are secure and well-equipped for transferring bulk products
from rail to truck.
11
3. Cash Flow Analysis

Cash flow analysis of a company helps in understanding how and where
the company spends money as well as the major sources of cash inflows.
This information can be used to evaluate the overall performance of the
company, and is a vital aspect of financial statements analysis.
Union Pacific Railroad:
The following graph presents the relationship between Union Pacifics
cash flows from operating, investing and financing activities, net
income, working and non-working capital adjustments for the five years
from 2010 to 2014.
UNION PACIFIC CORPORATIONS AND SUBSIDIARIES (in millions)

2010
2011
2012
NET INCOME
$
2,780 $
3,292 $
3,943
CASH FLOW FROM OPERATIONG ACTIVITIES
$
4,105 $
5,873 $
6,161
CASH FLOW FROM INVESTING ACTIVITIES
$
(2,488) $
(3,119) $
(3,633)
CASH FLOW FROM FINANCING ACTIVITIES
$
(2,381) $
(2,623) $
(2,682)
WORKING CAPITAL ADJUSTMENTS
$
(351) $
276 $
(269)
NON WORKING CAPITAL ADJUSTMENTS
$
1,676 $
2,305 $
2,487
12
$
$
$
$
$
$
2013
4,388
6,823
(3,405)
(3,049)
161
2,274
2014
$
$
$
$
$
$
5,180
7,385
(4,249)
(2,982)
(309)
2,514
Cash flows from operating activities were positive and kept increasing
throughout the five years. In 2014, the cash generated from operating
activities were almost double the amount in 2010. Net income on the
other hand, was positive and increasing as well and less than cash flows
from operating activities. Cash flows from financing and investing
activities were continuously negative. These are signs of a mature and
profitable company.
Analysis:
In 2010, the companys net income was higher than that of 2009 which
led to an increase in the cash provided by operating activities. In 2011,
the relatively higher net income and decreased income tax payments
further increased the cash provided by operating activities. The Tax
Relief, Unemployment Insurance Reauthorization and Job Creation act
of 2010 provided for a 100% bonus depreciation in 2011; as a result of
which the company deferred a substantial portion of its income tax
expense in 2011. The same applies for 2012, 2013 and 2014; when the
Federal Tax law provided for 50% bonus depreciation for qualified
investments made during those years. Depreciation increased from 1,487
in 2010 to 1,904 in 2014. The large positive non-working capital
adjustments explain the excess of cash flows from operations over net
income. On the other hand, working capital adjustments were both
positive and negative. This happened mainly due to decreases in
accounts receivable as cash was collected and also due to increasing
cash outflows for materials and supplies.
Net cash used by investing activities kept increasing throughout the five
years except for 2013 when it decreased by 228 million. This is because
railroad companies are highly capital intensive and they continuously
invest in track materials and freight cars. Higher capital investments and
lower proceeds from asset sales led to increase in cash used in investing
13
activities. The total capital investments in cash increased from $2.5

million in 2010 to $4.3 million in 2014. The company acquired assets
that were financed in 2011 and 2012 but were sold later the same year.
Moving on to cash flows from financing activities, they were
increasingly negative from 2010 to 2013, but decreased in 2014.
Dividend payments increased by $235 million, reflecting Union
Pacifics increased dividend rate. The company continuously
repurchased its common stock during the five years as compared to no
common share repurchases in 2009. However, the company used less
cash to reduce its outstanding debt which partially offset this increase.
However, cash used in financing activities decreased in 2014 as
increases in repurchase of common shares and higher dividend payments
during the year were offset by higher debt issuances.
Operating cash flow ratios for Union Pacific:
Union Pacific
Corporation
2010
2011
2012
2013
2014
Operating cash
flow/Current
maturities of
long-term debt
and notes
payable
Operating cash
flow to total
debt
Operating cash
flow per share
17.2
Times
28.1
times
31.43
times
9.67
times
15.98
times
44%
65%
68%
71%
64%
$5.16
$11.99
$12.92
$14.64
$18.19
Operating cash
flow to cash
dividends
6.81
Times
7.01
times
5.37
times
5.11
times
4.52
times
14
Norfolk Southern Railway:
NORFOLK SOUTHERN CORPORATIONS AND

SUBSIDIARIES
$4,000
NET INCOME
$3,000
$2,000
CASH FLOW FROM

OPERATIONG ACTIVITIES
$1,000
CASH FLOW FROM

INVESTING ACTIVITIES
CASH FLOW FROM
FINANCING ACTIVITIES
$2010
2011
2012
2013
WORKING CAPITAL
ADJUSTMENTS
2014
$(1,000)
NON WORKING CAPITAL

ADJUSTMENTS
$(2,000)
$(3,000)
NORFOLK SOUTHERN CORPORATIONS AND SUBSIDIARIES (in millions)

2010
2011
2012
NET INCOME
$
1,496 $
1,916 $
1,749
CASH FLOW FROM OPERATIONG ACTIVITIES
$
2,714 $
3,227 $
3,065
CASH FLOW FROM INVESTING ACTIVITIES
$
(1,456) $
(1,772) $
(1,994)
CASH FLOW FROM FINANCING ACTIVITIES
$
(1,472) $
(2,006) $
(694)
WORKING CAPITAL ADJUSTMENTS
$
122 $
(53) $
34
NON WORKING CAPITAL ADJUSTMENTS
$
1,096 $
1,364 $
1,282
$
$
$
$
$
$
2013
1,910
3,078
(1,894)
(394)
88
1,080
2014
$
$
$
$
$
$
2,000
2,852
(2,002)
(1,320)
(385)
1,237
The above graph links Norfolk Southerns net income, cash flows from
operating, investing and financing activities as well as the working and
non-working capital.
Cash flows from operating activities were positive but decreasing
whereas cash flows from investing and financing activities were always
negative. However, cash used by financing activities decreased up to
$394 million in 2013 and cash used by investing activities kept
increasing. This company seems to be in its maturity stage as well.
15
Analysis:
Cash provided by operating activities were $2.7 billion in 2010 and
increased to $3.1 in 2011 due to better operating results and lower tax
payments. However, it reduced to $3.1 billion in 2012. This happened
due to increased tax payments caused by decreased bonus depreciation,
in addition to lower operating results. Cash, cash equivalents, and shortterm investment balances totaled $668 million and $301 million on
December 31, 2012 and 2011 respectively. In 2013, cash provided from
operating activities remained more or less the same ($3.1 billion).
However, it decreased to $2.6 billion in 2014 due to the absence of
bonus depreciation which led to increase in current income tax expenses
and the related cash outflow for the payment of income taxes. The Tax
Increase Prevention Act of 2014 provided 50% bonus depreciation and
particular business tax credits. The effect of legislation will be seen as a
reduction in the 2015 cash outflows for income taxes as the year-end
estimated tax payment was due and paid before the 2014 Act was
enacted. Hence cash provided by operating activities are expected to
grow.
Cash used in investing activities increased from $1.5 billion in 2010 to
$1.8 billion in 2011. The increase in 2011 was due to higher property
additions that were partly offset by a decrease in investment purchases.
It increased to $2 billion in 2012 because of a decrease in investment
sales, net of purchases, and increased property additions as compared to
2011. Cash used in investing activities decreased in 2013 but increased
back to $2 billion in 2014 due to increased use of cash for property
additions and COLI (Corporate Owned Life Insurance) investments,
which were offset by higher short-term investment maturities.
16
Net cash used in financing activities increased in 2011 due to increased

share repurchases, offset by higher proceeds from borrowing, net of debt
repayments. However, it decreased to $694 in 2012 compared to $2
billion in 2011, because of reduced share repurchases, increased
proceeds from borrowings and reduced debt payments and maturities. It
decreased even more in 2013. In 2014, the cash used in financing
activities increased to $1.3 billion. This increase in 2014 was primarily
driven by higher debt repayments and lower debt proceeds.
Operating cash flow ratios for Norfolk Southern:
Norfolk Southern
Corporation
2010
2011
2012
2013
2014
Operating cash
flow/Current
maturities of
long-term debt
and notes payable
7.58
times
64.54
times
61.3
times
6.92
times
1426
times
Operating cash
flow to total debt
38%
42%
42%
32%
31%
Operating cash
flow per share
$7.40
$9.33
$9.54
$9.86
$0.31
Operating cash
flow to cash
dividends
5.28
times
5.60
times
4.91
times
4.83
times
4.15
times
17
1. Operating cash flow/Current maturities of long-term debt and

notes payable:
This ratio measures how a company utilizes cash flows from its
operations to meet its current maturities of debt. A higher ratio
indicates the company can easily pay its current portions of debt
with the help of net cash provided by operating activities. Both
companies are able to cover their debt payments with the help of
operating cash flows but Union Pacific seems to possess better
capabilities of paying its debts as it has higher operating cash
inflows and greater current maturities of long-term debt as
compared to Norfolk Southern.
2. Operating cash flow to total debt:
This ratio indicates a companys ability to cover all of its liabilities
with its yearly operating cash flow. It is clear that Union Pacific is
better than Norfolk Southern at using its operating cash flows to
pay for its debts as it has comparatively high percentages across
the five years.
3. Operating cash flow per share:
This ratio indicates a firms ability to make capital expenditure
decisions and pay dividends and is considered better than earnings
per share. However, it does not reflect a companys profitability.
Overall, Union Pacific has better operating cash flow per share
compared to Norfolk Southern.
4. Operating cash flow to cash dividends:
This ratio measures a companys ability to pay cash dividends with
its annual operating cash inflows. Union Pacific has better ability
to use its cash generated operations for paying dividends.
18
4. Profitability Analysis
4.1 Earnings per Share Analysis:
Basic Earnings per Share Analysis:
2014
$5.77
$6.44
Union
Norfolk
2013
$4.74
$6.10
2012
$4.17
$5.42
2011
$3.39
$5.52
2010
$2.79
$4.06
7
6
Dollars
5
4
Union
3
Norfolk
2
1
0
2010
2011
2012
19
2013
2014
Diluted Earnings per Share Analysis:
2014
$5.75
$6.39
Union
Norfolk
2013
$4.71
$6.04
2012
$4.14
$5.37
2011
$3.36
$5.45
2010
$2.77
$4.00
Dollars
4
Union
Norfolk
0
2010
2011
2012
20
2013
2014
From the above graphs, it is evident that EPS for Union Pacific kept
increasing smoothly. Whereas, EPS for Norfolk Southern experienced a
huge increase in 2011 and a minor decrease in 2012, and continued
growing in 2013 and 2014. Part of this is because of the net income,
which increased and decreased in between the years 2010 and 2012.
Union Pacific had growing net income throughout the five years.
Increasing net income plays a huge role in the advancement of EPS.
Hence both companies had growing EPS in years 2012 to 2014
regardless of the increase in weighted average number of common
shares outstanding. The companies also experienced lowest level of EPS
in 2010.
21
4.2 Common Size Analysis:

Vertical Analysis:
Income Statement for Union Pacific:

Union Pacific Corp (in Millions)
Sales/ Revenue
Agricultural
Automotive
Chemicals
Coal
Industrial Products
Intermodal
Total Freight Revenues
Other revenues
Total Operating Revenues
Operating Expenses
Compensation and benefits
Fuel
Purchased services and materials
Depreciation
Equipment and other rents
Other
Total Operating Expenses
Operating Income
Non-operating Items
Other Income
Interest Expense
Income Taxes
Net Income
2014
2013
2012
2011
2010
$ 3,777
$ 2,103
$ 3,664
$ 4,127
$ 4,400
$ 4,489
$ 22,560
$ 1,428
$ 23,988
16%
9%
15%
17%
18%
19%
94%
6%
100%
$ 3,276
$ 2,077
$ 3,501
$ 3,978
$ 3,822
$ 4,030
$ 20,684
$ 1,279
$ 21,963
15%
9%
16%
18%
17%
18%
94%
6%
100%
$ 3,280
$ 1,807
$ 3,238
$ 3,912
$ 3,494
$ 3,955
$ 19,686
$ 1,240
$ 20,926
16%
9%
15%
19%
17%
19%
94%
6%
100%
$
$
$
$
$
$
$
$
$
3,324
1,510
2,815
4,084
3,166
3,609
18,508
1,049
19,557
17%
8%
14%
21%
16%
18%
95%
5%
100%
$ 3,018
$ 1,271
$ 2,425
$ 3,489
$ 2,639
$ 3,227
$ 16,069
$
896
$ 16,965
18%
7%
14%
21%
16%
19%
95%
5%
100%
$ 5,076
$ 3,539
$ 2,558
$ 1,904
$ 1,234
$
924
$ 15,235
$ 8,753
21%
15%
11%
8%
5%
4%
64%
36%
$ 4,807
$ 3,534
$ 2,315
$ 1,777
$ 1,235
$
849
$ 14,517
$ 7,446
22%
16%
11%
8%
6%
4%
66%
34%
$ 4,685
$ 3,608
$ 2,143
$ 1,760
$ 1,197
$ 788
$ 14,181
$ 6,745
22%
17%
10%
8%
6%
4%
68%
32%
$
$
$
$
$
$
$
$
4,681
3,581
2,005
1,617
1,167
782
13,833
5,724
24%
18%
10%
8%
6%
4%
71%
29%
$ 4,314
$ 2,486
$ 1,836
$ 1,487
$ 1,142
$
719
$ 11,984
$ 4,981
25%
15%
11%
9%
7%
4%
71%
29%
$
151
$
(561)
$ (3,163)
0.62%
2%
13%
$
128
$ (526)
$ (2,660)
0.58%
2%
12%
$ 108
$ (535)
$ (2,375)
0.51%
3%
11%
$
112
$ (572)
$ (1,972)
0.57%
3%
10%
$
54
$
(602)
$ (1,653)
0.31%
4%
10%
20%
$ 3,943
19%
$ 3,292
17%
5,180
22%
4,388
2,780
16%
The common size income statements measure all line items as a

percentage of the total operating revenues for vertical analysis.
According to the above schedule, it is evident that Union Pacific had its
operating revenues largely from freight revenues (94% in 2014, 2013,
2012 and 95% in 2011 and 2010). This points out that the company
remains successful in freight transportation over the five years. Coal,
industrial products and Intermodal transportation constitute the majority
of freight revenues. Other revenues include revenues earned by
subsidiaries, revenues from Union Pacifics commuter rail operations
and accessorial revenues which are recognized by the company as they
perform services or meet contractual obligations.
22
On the other hand, wages and benefits to employees made up most of

the operating expenses, followed by fuel. Wages expense decreased
from 25% to 21% from 2010 to 2014. Fuel expenses increased by 3% in
2011 due to increase in fuel price per gallon but continued decreasing in
the following years. Because of decrease in these two items, total
operating expenses decreased from 71% to 64% of the total revenues
from 2010 to 2014. As a result of this reduction in expenses; net income
increased smoothly from 16% to 22%.
Other expenses include personal injury, freight and property damage,
insurance, state and local taxes etc. these expenses are relatively
insignificant and have minimalistic effect on the net income.
23
Balance Sheet for Union Pacific:

Union Pacific Corp (in millions)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Materials and supplies
Current deferred income taxes
Other current assets
Total current assets
Investments
Net properties
Other assets
TOTAL ASSETS
Liabilities and Common Shareholders' Equity
Current liabilities:
Accounts payable and other current liabilities
Debt due within one year
Total current liabilities
Debt due after one year
Deferred income taxes
Other long-term liabilities
Commitments and Contingencies
TOTAL LIABILITIES
2014
1,586
1,611
712
277
493
4,679
1,390
46,272
375
$ 52,716
3,303
462
3,765
11,018
14,680
2,064
$ 31,527
2013
3% $ 1,432
3%
1,414
1%
653
1%
268
1%
223
9%
3,990
3%
1,321
88%
43,749
1%
671
100% $ 49,731
6%
1%
7%
21%
28%
4%
3,086
705
3,791
8,872
14,163
1,680
2012
3% $ 1,063
3%
1,331
1%
660
1%
263
0.4%
297
8%
3,614
3%
1,259
88%
41,997
1%
283
100% $ 47,153
6%
1%
8%
18%
28%
3%
2,923
196
3,119
8,801
13,108
2,248
2011
2010
2% $ 1,217
3%
1,401
1%
614
1%
306
1%
189
8%
3,727
3%
1,175
89%
39,934
1%
260
100% $ 45,096
3% $ 1,086
3%
1,184
1%
534
1%
261
0.4%
367
8%
3,432
3%
1,137
89%
38,253
1%
266
100% $ 43,088
6%
0.4%
7%
19%
28%
5%
7%
0.5%
7%
19%
27%
5%
3,108
209
3,317
8,697
12,368
2,136
2,713
239
2,952
9,003
11,557
1,813
3%
3%
1%
1%
1%
8%
3%
89%
1%
100%
6%
1%
7%
21%
27%
4%
60% $ 28,506
57% $ 27,276
58% $ 26,518
59% $ 25,325
59%
Common shareholders' equity

Common shares, $2.50 par value, 1,400,000,000
authorised; 1,110,100,423 and 1,109,657,652 issued;
883,366,476 and 912,001,996 outstanding respectively (in 2014)
2,775
Paid-in-surplus
4,321
Retained earnings
27,367
Treasury stock
-12,064
Accumulated other comprehensive loss
-1,210
Total common shareholders' equity
$ 21,189
5%
1,387
8%
4,210
52%
25,288
-23%
-8,910
-2%
-750
40% $ 21,225
3%
1,386
8%
4,113
51%
22,271
-18%
-6,707
-2%
-1,186
43% $ 19,877
3%
1,386
9%
4,031
47%
19,508
-14%
-5,293
-3%
-1,054
42% $ 18,578
3%
1,385
9%
3,985
43%
17,154
-12%
-4,027
-2%
-734
41% $ 17,763
3%
9%
40%
-9%
-2%
41%
Total liabilities and common shareholders' equity
100% $ 49,731
100% $ 47,153
100% $ 45,096
100% $ 43,088
100%
$ 52,716
Similarly, common size balance sheets express all line items as a

percentage of total assets for vertical analysis.
Total current assets for Union Pacific grew at a slow pace from 8% in
2010 to 9% in 2014. This indicates that there were no material changes
in any of the current assets. Minor increase in cash and cash equivalents
contributes to the 1% increase in total current assets. Non-current assets
include long-term investments, properties plant and equipment, and
other assets. Net properties made up almost 89% of the total assets in
2010, 2011 and 2012 and 88% in 2013 and 2014. It is typical for a
railway company to have a greater percentage of assets from properties
plant and equipment because they continuously invest in railroad cars
and other fixed assets to keep their business going.
24
Investments and other assets play an insignificant role in total assets and
they remain the same throughout the five year analysis.
Secondly, total current liabilities decreased gradually in 2012 and 2013
but increased by 3% in 2014. This was mainly due to sudden increase in
long-term debts in 2014, which changed from 18% in 2013 to 21% in
2014. A 2% reduction in other long-term liabilities occurred in 2013,
which caused total liabilities level to drop further more from 58% to
57%. Current liabilities increased by 1% in 2013 but then decreased in
2014. Overall, most liabilities had minimal changes, increases or
decreases.
Thirdly, the schedule shows that total common shareholders equity kept
increasing slowly but decreased by 3% in 2014. This decrease occurred
as result of increase in treasury stock by 5% from 2013 to 2014. Also,
percentage of common shares outstanding increased suddenly to 5% in
2014 compared to 3% in the previous years. This happened as a result of
an increase in number of common shares authorized from 800,000,000
in 2010, 2011, 2012 and 2013 to 1,400,000,000 in 2014.
25
Income Statement for Norfolk Southern:

Norfolk Southern Corp (in millions)
Sales/Revenue
Coal
General Merchandise:
Chemicals
Metals/Construction
Agr./Consumer/gov't
Automotive
Paper/clay/forest
Total General Merchandise
Intermodal
2014
$
2,382
$ 1,863
$ 1,521
$ 1,498
$ 1,004
$
794
$ 6,680
$ 2,562
$ 11,624
2013
21% $
16%
13%
12%
7%
6%
57%
22%
100%
2,543
$ 1,667
$ 1,405
$ 1,467
$
984
$
795
$ 6,318
$ 2,384
$ 11,245
2012
23% $
15%
12%
13%
9%
7%
56%
21%
100%
2,879
$ 1,467
$ 1,446
$ 1,335
$
897
$
775
$ 5,920
$ 2,241
$ 11,040
2011
26% $
13%
13%
12%
8%
7%
54%
20%
100%
3,458
$ 1,368
$ 1,439
$ 1,241
$
780
$
756
$ 5,584
$ 2,130
$ 11,172
2010
31% $
2,719
29%
12%
13%
11%
7%
7%
50%
19%
100%
$
$
$
$
$
$
$
$
1,302
1,326
1,013
648
712
5,001
1,796
9,516
14%
14%
11%
7%
7%
52%
19%
100%
Operating Expenses
Purchased services and rents
Fuel
Depreciation
Materials and other expenses
Income from Railway Operations
$
$
$
$
$
$
$
2,897
1,687
1,574
951
940
8,049
3,575
25%
14%
13%
8%
8%
69%
31%
$
$
$
$
$
$
$
3,002
1,629
1,613
916
828
7,988
3,257
27%
14%
14%
8%
7%
71%
29%
$
$
$
$
$
$
$
2,960
1,604
1,577
916
859
7,916
3,124
27%
14%
14%
8%
8%
72%
28%
$
$
$
$
$
$
$
2,974
1,610
1,589
862
924
7,959
3,213
27%
14%
14%
8%
8%
71%
29%
$
$
$
$
$
$
$
2,708
1,477
1,079
819
757
6,840
2,676
28%
15%
11%
7%
8%
72%
28%
Other income
Interest Expense
Income before income taxes
Provisions for Income taxes
Net Income
$
$
$
$
$
104
545
3,134
1,134
2,000
0.9%
5%
27%
10%
17%
$
$
$
$
$
233
525
2,965
1,055
1,910
2%
5%
26%
9%
17%
$
$
$
$
$
129
495
2,758
1,009
1,749
1%
4%
25%
9%
16%
$
$
$
$
$
160
455
2,918
1,002
1,916
1%
4%
26%
9%
15%
$
$
$
$
$
153
462
2,367
871
1,496
2%
5%
25%
9%
16%
Coal and intermodal transportation dominate the operating revenues

generated at Norfolk Southern, with percentages of 21% and 22% in
2014, 23% and 21% in 2013, 26% and 20% in 201, 31% and 19% in
2011 and 29% and 19% in 2010 respectively. However, revenues from
coal transportation fell by 5% in 2012. This happened because of
decrease in carload volumes mainly due to fewer shipments of utility
coal. Moreover, it kept decreasing in the following years due to low
average revenue per unit driven by continued market-based pricing
pressure in the export coal market.
On the other hand, general merchandise revenues increased constantly
from 50% in 2011 to 57% in 2014. This shows that even though Norfolk
Southern had less revenues generating from coal, they had increasing
general merchandise revenues. This increase may have resulted due to
an increase in chemicals revenues. Revenues from transportation of
chemicals went up due to higher shipments of crude oil and increase in
26
carloads of liquefied petroleum gas and higher plastic volumes

generated.
Another notable aspect of general merchandise is the metal and
construction revenues which decreased by 1% in 2013 but increased
back to 13% in 2014. The reason for this is the slow but continued
growth in the natural gas drilling sector and higher metal-related traffic
volumes due to increasing domestic and global steel production.
Moving on to operating expenses, compensation and benefits again form
a huge percentage of the operating expenses. It represents 28% of the
total operating revenues in 2010, and 27% in 2011, 2012 and 2013 and
25% in 2014. The slight decrease can be explained due to reduction in
postretirement and pension benefit costs and health and welfare benefit
costs in 2014. Fuel expenses also increased from 11% to 14% in 2012,
and kept increasing. This was due to increase in locomotive fuel prices,
as well as increased fuel consumption. Also, increase in depreciation
over the years reflects the companys larger roadway and equipment
capital base as they continue to invest in their infrastructure and rolling
stock.
27
Balance Sheet for Norfolk Southern:

ASSETS
Current assets:
Short-term investments
Accounts receivable
Investments
Net properties
Other assets
TOTAL ASSETS
2014
973
2013
2012
2011
2010
1,055
236
167
347
2,778
2,679
27,694
90
$ 33,241
3% $ 1,443
0%
118
3%
1,024
1%
223
1%
180
1%
87
8%
3,075
8%
2,439
83%
26,645
0.3%
324
100% $ 32,483
4% $
0.4%
3%
1%
1%
0.3%
8%
8%
82%
1%
100% $
653
15
1,109
216
167
82
2,242
2,300
25,736
64
30,342
2% $
276
0.05%
25
4%
1,022
1%
209
1%
143
0.3%
76
7%
1,751
8%
2,234
85%
24,469
0.2%
84
100% $ 28,538
1% $
827
0.1%
283
4%
807
1%
169
1%
145
0.3%
240
6%
2,471
8%
2,193
86%
23,231
0.3%
304
100% $ 28,199
3%
1%
3%
1%
1%
1%
9%
8%
82%
1%
100%

Accounts payable
Short-term debt
Income and other taxes
Other current liabilities
Current maturities of long-term debt
Long-term debt
Other liabilities
TOTAL LIABILITIES
1,233
100
217
228
2
1,780
8,924
1,312
8,817
$ 20,833
4%
1,265
0.3%
100
1%
225
1%
270
0.01%
445
5%
2,305
27%
8,903
4%
1,444
27%
8,542
63% $ 21,194
4%
0.3%
1%
1%
1%
7%
27%
4%
26%
65% $
1,362
200
206
263
50
2,081
8,432
2,237
7,832
20,582
4%
1,092
1%
100
1%
207
1%
252
0.2%
50
7%
1,701
28%
7,390
7%
2,050
26%
7,486
68% $ 18,627
4%
1,181
0.4%
100
1%
199
1%
244
0.2%
358
6%
2,082
26%
6,567
7%
1,793
26%
7,088
65% $ 17,530
4%
0.4%
1%
1%
1%
7%
23%
6%
25%
62%
Stockholders' equity
Common stock $1 per share par value,
1,350,000,000 shares authorized; outstanding
308,240,130 and 308,878,404 shares, respectively,
net of treasury shares (in 2014)
Additional paid-in capital
Retained income
Total stockholders' equity
310
2,148
-398
10,348
$ 12,408
1%
310
6%
2,021
-1%
-381
31%
9,339
37% $ 11,289
1%
6%
-1%
29%
35%
315
1,911
-1,109
8,643
$9,760
1%
6%
-4%
28%
32%
1%
358
7%
1,892
-4%
-805
30%
9,224
35% $ 10,669
1%
7%
-3%
33%
38%
Total liabilities and stockholders' equity
$ 33,241
100% $ 32,483
100% $
30,342
332
1,912
-1,026
8,693
$9,911
100% $ 28,538
100% $ 28,199
100%
The first most attractive figure in the assets section is for properties,
plant and equipment. As explained for Union Pacific, Norfolk Southern
has a greater net properties percentage of total assets because railway
companies need to invest in a wide variety of fixed assets and
equipments in order to provide freight transportation services which are
the main source of revenues. The above schedule shows that net
properties increased by 4% in 2012. This explains why cash and cash
equivalents decreased by 2% in the same year. As net properties went
back to 82% in 2013, cash increased to 4%. This indicates that Norfolk
Southern had cash reserves that it used to make significant acquisition.
28
Total current assets also fell by 3% in 2011, mainly due to the reduction
in cash and cash equivalents; but continued increasing after that.
Investments remained the same in all five years.
Total current liabilities decreased from 7% to 6% in 2011 but increased
back to 7% in 2012 and 2013. However, they decreased again to 5% in
2014. The decreases in 2011 and 2014 were due to relatively low
percentages of current maturities of long-term debt in those years. The
schedule also shows that long-term debt and deferred income taxes form
the greatest percentages of total liabilities. It is again typical for railway
companies to have higher percentages of long-term debt in order to
obtain immediate capital. Increase in deferred income taxes reflect the
companys inability to pay off the complete amount of taxes, and will
have to pay the unpaid portions in the near future. Total liabilities
increased from 62% in 2010 to 68% in 2012 but decreased back to 62%
in 2014. This happened as a result of increase in other long-term
liabilities in 2011 and 2012 by 1% and due to its decrease in 2013 and
2014 by 3%.
Lastly, the amount of common shares remained the same in all years
mainly because the number of authorized shares was 1,350,000,000 for
all five years, unlike Union Pacific. Accumulated other comprehensive
loss indicate total unrealized losses from investments held by the
company, which decreased significantly in 2013. The total stockholders
equity decreased from 38% in 2010 to 35% in 2011, and further
decreased to 32% in 2012; because of reduced percentages of retained
earnings. As retained earnings increased in 2013 and 2014, total
stockholders equity rose back to 35% in 2013 and 37% in 2014.
Increase in retained earnings can be explained by the increase in net
income in 2013 and 2014.
29
Horizontal Analysis:
Income Statement for Union Pacific:

Sales/ Revenue
Agricultural
Automotive
Chemicals
Coal
Industrial Products
Intermodal
Other revenues
Operating Expenses
Fuel
Depreciation
Other
Operating Income
Non-operating Items
Other Income
Interest Expense
Income Taxes
Net Income
2014
2013
2012
2011
2010
2014
2013
2012
2011
2010
$
$
$
$
$
$
$
$
$
3,777
2,103
3,664
4,127
4,400
4,489
22,560
1,428
23,988
$
$
$
$
$
$
$
$
$
3,276
2,077
3,501
3,978
3,822
4,030
20,684
1,279
21,963
$
$
$
$
$
$
$
$
$
3,280
1,807
3,238
3,912
3,494
3,955
19,686
1,240
20,926
$ 3,324 $
$ 1,510 $
$ 2,815 $
$ 4,084 $
$ 3,166 $
$ 3,609 $
$ 18,508 $
$ 1,049 $
$ 19,557 $
3,018
1,271
2,425
3,489
2,639
3,227
16,069
896
16,965
125%
165%
151%
118%
167%
139%
140.4%
159.4%
141.4%
109%
163%
144%
114%
145%
125%
129%
143%
129%
109%
142%
134%
112%
132%
123%
123%
138%
123%
110%
119%
116%
117%
120%
112%
115%
117%
115%
100%
100%
100%
100%
100%
100%
100%
100%
100%
$
$
$
$
$
$
$
$
5,076
3,539
2,558
1,904
1,234
924
15,235
8,753
$
$
$
$
$
$
$
$
4,807
3,534
2,315
1,777
1,235
849
14,517
7,446
$
$
$
$
$
$
$
$
4,685
3,608
2,143
1,760
1,197
788
14,181
6,745
$ 4,681 $
$ 3,581 $
$ 2,005 $
$ 1,617 $
$ 1,167 $
$
782 $
$ 13,833 $
$ 5,724 $
4,314
2,486
1,836
1,487
1,142
719
11,984
4,981
117.6%
142.35%
139.3%
128.0%
108%
128.5%
127.1%
176%
111%
142%
126%
120%
108%
118%
121%
149%
109%
145%
117%
118%
105%
110%
118%
135%
109%
144%
109%
109%
102%
109%
115%
115%
100%
100%
100%
100%
100%
100%
100%
100%
$
$
$
151 $
(561) $
(3,163) $
128 $
(526) $
(2,660) $
108 $
(535) $
(2,375) $
112 $
(572) $
(1,972) $
54
(602)
(1,653)
279.7%
93.2%
191.3%
237%
87%
160%
200%
89%
144%
207%
95%
119%
100%
100%
100%
5,180 $
4,388 $
3,943 $
3,292 $
2,780
186.3%
158%
142%
118%
100%
Common size financial statements measure all elements as a percentage

of a base year amount for horizontal analysis. In our report, we will
consider 2010 as the base year and use the amounts in that particular
year to evaluate any increases or decreases in the following four years.
The total operating revenues kept increasing throughout the five years.
There was a 41.4% growth from 2010 to 2014. Also, revenues increased
the most in 2014, from 129% in 2013 to 141.4% in 2014; which is
nearly a 12% increase in one year. This happened as revenues from
agricultural products increased by 16% in 2014, and revenues from
industrial products increased by 22% in the same year. Increase in these
two items led to an increase in total freight revenues by 11.4%. As a
result, total operating revenues increased drastically in 2014.
30
Total operating expenses also increased constantly from 2010 to 2014;

with the largest increase of 6% in 2014. The increase occurred as a result
of a 13% increase of purchased services and material expenses in 2014
and also due to other expenses increasing by 10.5% in the same year. All
other expenses increased across the years. However, fuel expenses
decreased by 3% in 2013, and then increased slightly by 0.35% in 2014.
Lastly, we can see that net income increased significantly up to 86.3%
from 2010 to 2014. Other income increased by almost 180%, interest
expense remained more or less the same; income taxes also grew by
91.3% from 2010 to 2014.
31
Balance Sheet for Union Pacific:

ASSETS
Current assets:
Accounts receivable
Investments
Net properties
Other assets
TOTAL ASSETS
2014
2013
2012
2011
2010
1,586 $ 1,432 $ 1,063 $ 1,217 $ 1,086

1,611
1,414
1,331
1,401
1,184
712
653
660
614
534
277
268
263
306
261
493
223
297
189
367
4679
3990
3614
3727
3432
1,390
1,321
1,259
1,175
1,137
46,272
43,749
41,997
39,934
38,253
375
671
283
260
266
$ 52,716 $ 49,731 $ 47,153 $ 45,096 $ 43,088
2014
2013
2012
2011
2010
146%
136%
133%
106%
134%
136%
122%
121%
141%
122%
132%
119%
122%
103%
61%
116%
116%
114%
252%
115%
98%
112%
124%
101%
81%
105%
111%
110%
106%
109%
112%
118%
115%
117%
51%
109%
103%
104%
98%
105%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
122%
193%
128%
122%
127%
114%
114%
295%
128%
99%
123%
93%
108%
82%
106%
98%
113%
124%
115%
87%
112%
97%
107%
118%
100%
100%
100%
100%
100%
100%

TOTAL LIABILITIES
$ 31,527 $ 28,506 $ 27,276 $ 26,518 $ 25,325
124%
113%
108%
105%
100%

883,366,476 and 912,001,996 outstanding respectively (in 2014)
Paid-in-surplus
Retained earnings
Treasury stock
2,775
2,774
1,386
1,386
1,385
4,321
4,210
4,113
4,031
3,985
27,367
23,901
22,271
19,508
17,154
-12,064
-8,910
-6,707
-5,293
-4,027
-1,210
-750
-1,186
-1,054
-734
$ 21,189 $ 21,225 $ 19,877 $ 18,578 $ 17,763
200%
108%
160%
300%
165%
119%
200%
106%
139%
221%
102%
119%
100%
103%
130%
167%
162%
112%
100%
101%
114%
131%
144%
105%
100%
100%
100%
100%
100%
100%
$ 52,716 $ 49,731 $ 47,153 $ 45,096 $ 43,088
122%
115%
109%
105%
100%
3,303
462
3,765
11,018
14,680
2,064
3,086
705
3,791
8,872
14,163
1,680
2,923
196
3,119
8,801
13,108
2,248
3,108
209
3,317
8,697
12,368
2,136
2,713
239
2,952
9,003
11,557
1,813
Again, we consider 2010 to be the base year for the balance sheet, and
measure all components accordingly.
Total assets increased slowly but consistently by 27% from 2010 to
2014. This happened mainly due to the continuing growth in long-term
investments and properties, plant and equipment. However, total current
assets decreased by 4% in 2012, but continued growing after that. This
reduction in current assets was due to a decrease in the amount of cash
and cash equivalents in 2012, which later increased by 34% in 2013. In
2012, accounts receivable also decreased by 6%, but went back to
normal with a 7% increase in 2013. Other current assets experienced ups
and downs across the five year analysis, with a 49% decrease in 2011,
30% increase in 2012, 20% decrease in 2013 and finally a 73% increase
in 2014.
32
Moving on to liabilities, total current liabilities decreased by 6% in

2012. This was due to reduced current maturities of long-term debts as
well as a reduction in the amount of accounts payable. Current
maturities of long-term debts decreased by 5% and accounts payable
decreased by 7% in 2012. Total liabilities increased by 11% in 2014;
even though there was no change in total current liabilities (128% for
2013 and 2014). In 2014, long-term debts increased by 23%, deferred
income taxes increased by 4% and other long term liabilities also
increased by 21%, all of these factors led to the huge increase of total
liabilities in 2014.
Finally, the company experienced a 7% increase in total common
shareholders equity in 2013, and remained the same in 2014 (119%).
This increase was due to a 100% increase in Union Norfolks share
capital. Retained earnings also increased by 9% in 2013; and by 21% in
2014. The companys treasury stocks increased by 31% in 2011, 36% in
2012, 54% in 2013 and 79% in 2014, which meant that the company
repurchased more of its stocks throughout the five years.
33
Income Statement for Norfolk Southern:

Sales/Revenue
Coal
Chemicals
Metals/Construction
Agr./Consumer/gov't
Automotive
Paper/clay/forest
Intermodal
2014
2012
2011
2010
2,543
$2,879
$3,458
$2,719
88%
94%
106%
127%
100%
$ 1,863
$ 1,521
$ 1,498
$ 1,004
$
794
$ 6,680
$ 2,562
$ 11,624
$ 1,667
$ 1,405
$ 1,467
$
984
$
795
$ 6,318
$ 2,384
$ 11,245
$1,467
$1,446
$1,335
$897
$775
$5,920
$2,241
$11,040
$1,368
$1,439
$1,241
$780
$756
$5,584
$2,130
$11,172
$1,302
$1,326
$1,013
$648
$712
$5,001
$1,796
$9,516
143%
115%
148%
155%
112%
134%
143%
122%
128%
106%
145%
152%
112%
126%
133%
118%
113%
109%
132%
138%
109%
118%
125%
116%
105%
109%
123%
120%
106%
112%
119%
117%
100%
100%
100%
100%
100%
100%
100%
100%
Operating Expenses
Fuel
Depreciation
$
$
$
$
$
$
$
2,897
1,687
1,574
951
940
8,049
3,575
$
$
$
$
$
$
$
3,002
1,629
1,613
916
828
7,988
3,257
$2,960
$1,604
$1,577
$916
$859
$7,916
$3,124
$2,974
$1,610
$1,589
$862
$924
$7,959
$3,213
$2,708
$1,477
$1,079
$819
$757
$6,840
$2,676
107%
114%
146%
116%
124%
118%
134%
111%
110%
149%
112%
109%
117%
122%
109%
109%
146%
112%
113%
116%
117%
110%
109%
147%
105%
122%
116%
120%
100%
100%
100%
100%
100%
100%
100%
Other income
Interest Expense
Net Income
$
$
$
$
$
104
545
3,134
1,134
2,000
$
$
$
$
$
233
525
2,965
1,055
1,910
$129
$495
$2,758
$1,009
$1,749
$160
$455
$2,918
$1,002
$1,916
$153
$462
$2,367
$871
$1,496
68%
118%
132%
130%
134%
152%
114%
125%
121%
128%
84%
107%
117%
116%
117%
105%
98%
123%
115%
128%
100%
100%
100%
100%
100%
2013
2,382 $
2014
2013
2012
2011
2010
According to Norfolk Southern Railway, their main sources of revenues

are from coal and intermodal transportation. Revenues generated from
coal transportation increased by 27% in 2011 but then decreased by 21%
in 2012; and continued to decrease. This decrease in revenues reflected a
13% decrease in carload volume due to fewer shipments of coal. Under
general merchandise, revenues from chemicals increased by 15% in
2013, and by an additional 15% in 2014; reflecting a 12% increase in
volume growth largely driven by higher shipments of crude oil and also
due to growth in shipments of liquefied petroleum gas. Agriculture,
consumer product, and government revenues increased by 14% in 2013,
reflecting pricing improvements.
Another item with significant changes is revenue conceived from
intermodal transportation, which increased by 10% in 2014. This
34
happened due to improvement in domestic volume (including truckload

and intermodal marketing companies).
Moving on to operating expenses; wages expense decreased by 4% in
2014. Purchased services and rents expenses were the highest in 2014,
where it increased by 4%. Fuel expenses increased by 47% in 2011 and
continued increasing, mainly due to increase in fuel prices. Materials
and other expenses increased by 22% in 2011 and by 15% in 2014;
reflecting increases in locomotive and equipment maintenance and
repair costs.
Net income decreased by 11% in 2012 due to increase in interest
expense and increase in provisions for income taxes. However, in 2013
net income increased again by 11% and by 6% in 2014. The reason for
this was the comparatively higher income amounts in 2013 and 2014.
35
Balance Sheet for Norfolk Southern:

ASSETS
Current assets:
Accounts receivable
Investments
Net properties
Other assets
TOTAL ASSETS
2014
1,055
236
167
347
2,778
2,679
27,694
90
$33,241
$1,443
$653
$276
$827
118
15
25
283
1,024
1,109
1,022
807
223
216
209
169
180
167
143
145
87
82
76
240
3,075
2,242
1,751
2,471
2,439
2,300
2,234
2,193
26,645
25,736
24,469
23,231
324
64
84
304
$32,483 $30,342 $28,538 $28,199
118%
0%
131%
140%
115%
145%
112%
122%
119%
30%
118%
174%
42%
127%
132%
124%
36%
124%
111%
115%
107%
115%
79%
5%
137%
128%
115%
34%
91%
105%
111%
21%
108%
33%
9%
127%
124%
99%
32%
71%
102%
105%
28%
101%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%

Accounts payable
Short-term debt
Long-term debt
Other liabilities
TOTAL LIABILITIES
1,233
1,265
1,362
1,092
1,181
100
100
200
100
100
217
225
206
207
199
228
270
263
252
244
2
445
50
50
358
1,780
2,305
2,081
1,701
2,082
8,924
8,903
8,432
7,390
6,567
1,312
1,444
2,237
2,050
1,793
8,817
8,542
7,832
7,486
7,088
$20,833 $21,194 $20,582 $18,627 $17,530
104%
100%
109%
93%
1%
85%
136%
73%
124%
119%
107%
100%
113%
111%
124%
111%
136%
81%
121%
121%
115%
200%
104%
108%
14%
100%
128%
125%
110%
117%
92%
100%
104%
103%
14%
82%
113%
114%
106%
106%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
308,240,130 and 308,878,402 shares, respectively,
net of treasury shares (in 2014)
Retained income
310
310
2,148
2,021
-398
-381
10,348
9,339
$12,408 $11,289
87%
114%
49%
112%
116%
87%
107%
47%
101%
106%
88%
101%
138%
94%
91%
93%
101%
127%
94%
93%
100%
100%
100%
100%
100%
$33,241
118%
115%
108%
101%
100%
$973
2013
$32,483
2012
315
1,911
-1,109
8,643
$9,760
$30,342
2011
2010
332
358
1,912
1,892
-1,026
-805
8,693
9,224
$9,911 $10,669
$28,538
$28,199
2014
2013
2012
2011
2010
Under current assets, cash and cash equivalents decreased drastically (by
67%) and the highest increase of 95% were recorded in 2013. Also,
short-term investments were highest in 2013 after 2010, accounting for
about 42%; and there were no short-term investments in 2014. Materials
and supplies increased slowly across the 5 years. Net properties
increased by 5% in 2011, by 6% in 2012 and by 4% in 2013 and 2014;
which indicates the company continuously invested in equipments and
other fixed assets vital to the business. Total assets were highest in 2014
because of increased properties, plant and equipment and also due to an
11% increase long-term investments in 2014. Other current assets were
also the highest for 2014.
36
Accounts payable fell by 8% in 2011 but increased to 115% in the

following year, probably due to high amount of expenses in 2012 (refer
income statement). Short-term debt increased by 100% in 2012. Current
maturities of long-term debt decreased to 14% in 2011 and 2012 but
increased to 124% in 2013. Total liabilities were highest in 2013 due to
this reason.
Total stockholders equity decreased by 7% in 2011 and further
decreased by 2% in 2012. However, as retained earnings and additional
paid in surplus increased through the years and other comprehensive loss
decreased; net income was highest for 2014.
37
4.3 Percentage change statements:

Income statement for Union Pacific:
Sales/ Revenue
Agricultural
Automotive
Chemicals
Coal
Industrial Products
Intermodal
Other revenues
Operating Expenses
Fuel
Depreciation
Other
Operating Income
Non-operating Items
Other Income
Interest Expense
Income Taxes
Net Income
2014
2013
2012
2011
2010
2011%
2012%
2013%
2014%
$
$
$
$
$
$
$
$
$
3,777
2,103
3,664
4,127
4,400
4,489
22,560
1,428
23,988
$
$
$
$
$
$
$
$
$
3,276
2,077
3,501
3,978
3,822
4,030
20,684
1,279
21,963
$
$
$
$
$
$
$
$
$
3,280
1,807
3,238
3,912
3,494
3,955
19,686
1,240
20,926
$ 3,324 $
$ 1,510 $
$ 2,815 $
$ 4,084 $
$ 3,166 $
$ 3,609 $
$ 18,508 $
$ 1,049 $
$ 19,557 $
3,018
1,271
2,425
3,489
2,639
3,227
16,069
896
16,965
10%
19%
16%
17%
20%
12%
15%
17%
15%
-1%
20%
15%
-4%
10%
10%
6%
18%
7%
0%
15%
8%
2%
9%
2%
5%
3%
5%
15%
1%
5%
4%
15%
11%
9%
12%
9%
$
$
$
$
$
$
$
$
5,076
3,539
2,558
1,904
1,234
924
15,235
8,753
$
$
$
$
$
$
$
$
4,807
3,534
2,315
1,777
1,235
849
14,517
7,446
$
$
$
$
$
$
$
$
4,685
3,608
2,143
1,760
1,197
788
14,181
6,745
$ 4,681 $
$ 3,581 $
$ 2,005 $
$ 1,617 $
$ 1,167 $
$
782 $
$ 13,833 $
$ 5,724 $
4,314
2,486
1,836
1,487
1,142
719
11,984
4,981
9%
44%
9%
9%
2%
9%
15%
15%
0%
1%
7%
9%
3%
1%
3%
18%
3%
-2%
8%
1%
3%
8%
2%
10%
6%
0%
10%
7%
0%
9%
5%
18%
$
$
$
151 $
(561) $
(3,163) $
128 $
(526) $
(2,660) $
108 $
(535) $
(2,375) $
112 $
(572) $
(1,972) $
54
(602)
(1,653)
107%
-5%
19%
-4%
-6%
20%
19%
-2%
12%
18%
7%
19%
5,180 $
4,388 $
3,943 $
3,292 $
2,780
18%
20%
11%
18%
We use the percentage change statements to help provide an

understanding of growth and decline in key line items.
First and foremost, the total operating revenues kept increasing steadily,
and the highest growth was recorded in 2011, due to core pricing gains,
higher fuel surcharges and increased volume that led to a growth in
energy freight revenue from 2010 levels.
Operating expenses also increased the highest in 2011 because of
increase in fuel prices as the global economy grew. Net income grew
over the five years as revenues increased and interest expense decreased.
38
Balance sheet for Union Pacific:

ASSETS
Current assets:
Accounts receivable
Investments
Net properties
Other assets
TOTAL ASSETS
TOTAL LIABILITIES
2014
2013
2012
2011
2010
1,586 $ 1,432 $ 1,063 $ 1,217 $ 1,086

1,611
1,414
1,331
1,401
1,184
712
653
660
614
534
277
268
263
306
261
493
223
297
189
367
4679
3990
3614
3727
3432
1,390
1,321
1,259
1,175
1,137
46,272
43,749
41,997
39,934
38,253
375
671
283
260
266
$ 52,716 $ 49,731 $ 47,153 $ 45,096 $ 43,088
3,303
462
3,765
11,018
14,680
2,064
3,086
705
3,791
8,872
14,163
1,680
2,923
196
3,119
8,801
13,108
2,248
3,108
209
3,317
8,697
12,368
2,136
2,713
239
2,952
9,003
11,557
1,813
$ 31,527 $ 28,506 $ 27,276 $ 26,518 $ 25,325

883,366,476 and 912,001,996 outstanding respectively
2,775
2,774
1,386
1,386
1,385
Paid-in-surplus
4,321
4,210
4,113
4,031
3,985
Retained earnings
27,367
23,901
22,271
19,508
17,154
Treasury stock
-12,064
-8,910
-6,707
-5,293
-4,027
-1,210
-750
-1,186
-1,054
-734
$ 21,189 $ 21,225 $ 19,877 $ 18,578 $ 17,763
$ 52,716 $ 49,731 $ 47,153 $ 45,096 $ 43,088
2011%
2012%
2013%
2014%
12%
18%
15%
17%
-49%
9%
3%
4%
-2%
5%
-13%
-5%
7%
-14%
57%
-3%
7%
5%
9%
5%
35%
6%
-1%
2%
-25%
10%
5%
4%
137%
5%
11%
14%
9%
3%
121%
17%
5%
6%
-44%
6%
15%
-13%
12%
-3%
7%
18%
-6%
-6%
-6%
1%
6%
5%
6%
260%
22%
1%
8%
-25%
7%
-34%
-1%
24%
4%
23%
5%
3%
5%
11%
0%
1%
14%
31%
44%
5%
0%
2%
14%
27%
13%
7%
100%
2%
7%
33%
-37%
7%
0%
3%
15%
35%
61%
0%
5%
5%
5%
6%
The total assets for Union Pacific grew smoothly throughout the five
years, there were no extraordinary changes. However, total liabilities
increased by 11% in 2014, as current maturities of long-term debt and
other long-term liabilities increased, that include asserted claims and
lawsuits.
Since there was not much change in the total common shareholders
equity in 2014, total liabilities and equity increased at an almost equal
pace each year.
39
Income statement for Norfolk Southern;

Sales/Revenue
Coal
Chemicals
Metals/Construction
Agr./Consumer/gov't
Automotive
Paper/clay/forest
Intermodal
2014
2012
2011
2010
2,543
$2,879
$3,458
$ 1,863
$ 1,521
$ 1,498
$ 1,004
$
794
$ 6,680
$ 2,562
$ 11,624
$ 1,667
$ 1,405
$ 1,467
$
984
$
795
$ 6,318
$ 2,384
$ 11,245
$1,467
$1,446
$1,335
$897
$775
$5,920
$2,241
$11,040
Operating Expenses
Fuel
Depreciation
$
$
$
$
$
$
$
2,897
1,687
1,574
951
940
8,049
3,575
$
$
$
$
$
$
$
3,002
1,629
1,613
916
828
7,988
3,257
Other income
Interest Expense
Net Income
$
$
$
$
$
104
545
3,134
1,134
2,000
$
$
$
$
$
233
525
2,965
1,055
1,910
2013
2,382 $
2011%
2012%
2013%
2014%
$2,719
27%
-17%
-12%
-6%
$1,368
$1,439
$1,241
$780
$756
$5,584
$2,130
$11,172
$1,302
$1,326
$1,013
$648
$712
$5,001
$1,796
$9,516
5%
9%
23%
20%
6%
12%
19%
17%
7%
0%
8%
15%
3%
6%
5%
-1%
14%
-3%
10%
10%
3%
7%
6%
2%
12%
8%
2%
2%
0%
6%
7%
3%
$2,960
$1,604
$1,577
$916
$859
$7,916
$3,124
$2,974
$1,610
$1,589
$862
$924
$7,959
$3,213
$2,708
$1,477
$1,079
$819
$757
$6,840
$2,676
10%
9%
47%
5%
22%
16%
20%
0%
0%
-1%
6%
-7%
-1%
-3%
1%
2%
2%
0%
-4%
1%
4%
-3%
4%
-2%
4%
14%
1%
10%
$129
$495
$2,758
$1,009
$1,749
$160
$455
$2,918
$1,002
$1,916
$153
$462
$2,367
$871
$1,496
5%
-2%
23%
15%
28%
-19%
9%
-5%
1%
-9%
81%
6%
8%
5%
9%
-55%
4%
6%
7%
5%
Coal revenues decreased by 17% due to fewer shipments of utility coal

and decreased fuel surcharge revenue. Total operating revenues
decreased by a small amount in 2012, but continued increasing in 2012
and 2014. On the other hand, operating expenses increased by 16% in
2011 due to increase in fuel prices.
Net income decreased by 9% in 2012, mainly due to decrease in other
income and increase in interest expenses during that year.
40
Balance sheet for Norfolk Southern:

ASSETS
Current assets:
Accounts receivable
Investments
Net properties
Other assets
TOTAL ASSETS
2014
2011%
2012%
2013%
2014%
$1,443
$653
$276
$827
118
15
25
283
1,024
1,109
1,022
807
223
216
209
169
180
167
143
145
87
82
76
240
3,075
2,242
1,751
2,471
2,439
2,300
2,234
2,193
26,645
25,736
24,469
23,231
324
64
84
304
$32,483 $30,342 $28,538 $28,199
-67%
-91%
27%
24%
-1%
-68%
-29%
2%
5%
-72%
1%
137%
-40%
9%
3%
17%
8%
28%
3%
5%
-24%
6%
121%
687%
-8%
3%
8%
6%
37%
6%
4%
406%
7%
-33%
-100%
3%
6%
-7%
299%
-10%
10%
4%
-72%
2%
1,055
236
167
347
2,778
2,679
27,694
90
$33,241

Accounts payable
Short-term debt
Long-term debt
Other liabilities
TOTAL LIABILITIES
1,233
1,265
1,362
1,092
1,181
100
100
200
100
100
217
225
206
207
199
228
270
263
252
244
2
445
50
50
358
1,780
2,305
2,081
1,701
2,082
8,924
8,903
8,432
7,390
6,567
1,312
1,444
2,237
2,050
1,793
8,817
8,542
7,832
7,486
7,088
$20,833 $21,194 $20,582 $18,627 $17,530
-8%
0%
4%
3%
-86%
-18%
13%
14%
6%
6%
25%
100%
0%
4%
0%
22%
14%
9%
5%
10%
-7%
-50%
9%
3%
790%
11%
6%
-35%
9%
3%
-3%
0%
-4%
-16%
-100%
-23%
0%
-9%
3%
-2%
308,878,402 shares, respectively, net of
treasury shares
Retained income
310
310
2,148
2,021
-398
-381
10,348
9,339
$12,408 $11,289
-7%
1%
27%
-6%
-7%
-5%
0%
8%
-1%
-2%
-2%
6%
-66%
8%
16%
0%
6%
4%
11%
10%
$33,241
1%
6%
7%
2%
$973
2013
$32,483
2012
315
1,911
-1,109
8,643
$9,760
$30,342
2011
2010
332
358
1,912
1,892
-1,026
-805
8,693
9,224
$9,911 $10,669
$28,538
$28,199
Total current assets decreased by 29% in 2011 as cash and cash

equivalents decreased as compared to 2010 levels, as the company used
more cash for its acquisitions. Total current liabilities decreased by 23%
in 2014 as current maturities of long-term debt were very low as
compared to that of 2013. As a result, total liabilities decreased by 2%.
Total stockholders equity increased by 16% in 2013 due to increase in
retained earnings and additional paid-in capital.
41
4.4 Rate of return ratios:

Return on Total Assets:
2014
2013
2012
2011
2010
Union
10.1%
9.1%
8.5%
7.5%
6.5%
Norfolk
6.1%
6.1%
5.9%
6.8%
5.4%
This ratio measures the extent to which a company utilizes its assets to
generate profits and is one of the key elements of profitability analysis.
From the above table, we can see that ROA for Union Pacific kept
increasing constantly year after year, whereas on the other hand; ROA
for Norfolk Southern increased in 2011 but fell back to 5.9% in 2012.
This happened because of decrease in net income and relatively higher
average total assets. Norfolks ROA had a minor increase in 2013 and
remained the same in 2014. Overall, Union Pacific had more return on
total assets as compared to Norfolk, as it has higher net income and
greater amount of average total assets as compared to Norfolk Southern.
Disaggregating Return on Total Assets:
Return on Total Assets = Net Profit margin * Total Asset Turnover
Net Profit Margin:
2014
2013
2012
2011
2010
Union
21.59%
19.98%
18.84%
16.83%
16.39%
Norfolk
17.21%
16.99%
15.84%
17.15%
15.72%
42
This ratio measures the profit generated from sales for a company and is
an element of return on assets. Again, profit margin for Union Pacific
keeps increasing steadily but net profit margin for Norfolk decreased by
almost 2% in 2012 due to decrease in net income, which is why the
company has a lower ROA in this year. However, it continued
increasing in 2013 and 2014. Union Pacific generated more profit from
sales as compared to Norfolk Southern in all five years, as its net income
kept increasing throughout the five years.
Total Asset Turnover:
Union
Norfolk
2014
2013
2012
2011
2010
0.47
Times
0.35
Times
0.45
times
0.36
times
0.45
times
0.38
times
0.44
times
0.39
times
0.40
Times
0.34
Times
The asset turnover ratio is the second element of ROA and it measures
how well a company uses its assets to generate sales. Union Pacific
generated $0.40 for every dollar of its assets in 2010 compared to $0.47
in 2014. On the other hand, Norfolk Southerns asset turnover was
highest in 2011 i.e. 0.39 times. It decreased in the following years and
was 0.35 times in 2014, almost the same as that of 2010. Hence, the
company didnt use its assets effectively to generate sales, as compared
to Union Pacific, that has relatively high and increasing asset turnover
every year.
43
Return on Operating Assets:

2014
2013
2012
2011
2010
Union
17.74%
15.95%
15.11%
13.41%
12.07%
Norfolk
11.88%
11.29%
11.53%
12.38%
10.58%
This ratio measures to what extent a company can use its operating
assets to generate profits. Union Pacific has greater returns on
operating assets as compared to Norfolk Southern, because it has
comparatively higher operating income.
Disaggregating Return on Operating Assets:
Return on Operating assets = Operating income margin * Operating
assets turnover
Operating Income Margin:
2014
2013
2012
2011
2010
Union
36.49%
33.90%
32.23%
29.27%
29.36%
Norfolk
30.76%
28.96%
28.30%
28.76%
28.12%
Operating income margin measures a companys operating efficiency

and is used for calculating the return on operating assets. From the above
table, it is clear that the operating margin for Union Pacific is increasing
in all years except in 2011, where it fell by 0.09%. Operating margin for
Norfolk Southern also increased but the growth was not as much as
44
compared to Union pacific. Also, it experienced a decrease of 0.46% in

2012. Overall, both companies seem to have good operating income
margin.
Operating Asset Turnover:
Union
Norfolk
2014
2013
2012
2011
2010
0.49
times
0.39
times
0.47
times
0.39
times
0.47
times
0.41
times
0.46
times
0.43
times
0.41
Times
0.38
Times
This ratio measures the ability of a company to use its operating assets to
generate sales dollars and is an important aspect of a companys
profitability analysis. Union Pacific has its highest operating asset
turnover in 2014, where it generated $0.49 dollar of sales per dollar of
operating assets, whereas Norfolk Southerns highest operating asset
turnover was in 2011 (0.43 times). This happened due to a drastic
increase in operating revenues due to a growth in Intermodal
transportation. However, revenues fell in 2012, resulting in lower
operating asset turnover in the following year. Even though operating
revenues increased in 2013 and 2013, operating assets turnover was the
same due to relatively higher average operating assets.
45
Return on Investment:
2014
2013
2012
2011
2010
Union
18.35%
16.43%
15.54%
13.76%
12.12%
Norfolk
11.32%
11.32%
11.18%
12.14%
10.32%
This ratio measures the efficiency of a companys investments and the

income earned on investment. The highest return on investment for
Norfolk Southern was in 2011 (12.14%) and in 2014 for Union Pacific
(18.35%). This is because Union Pacific had increasing returns on
investment every year as opposed to Norfolk Southern, because the
companys return on investment decreased to 11.18% in 2012. This
happened due to decrease in net income in 2011, as well as an increase
in average long-term liabilities and equity in the same year. Union
Pacific seems to be more profitable as it has comparatively higher
returns on investment.
Return on Total Equity:
2014
2013
2012
2011
2010
Union
24.42%
21.35%
20.5%
18.11%
16.08%
Norfolk
16.88%
18.15%
17.8%
18.62%
14.23%
This ratio measures a companys profitability by the extent to which the

company can generate profit with the shareholders equity. The income
earned from equity for Union Pacific kept increasing every year. On the
other hand, Norfolk Southern had increasing and decreasing returns on
equity throughout the five years. This happened as Norfolks equity
46
grew largely as compared to its net income, which didnt increase much.
Union Pacific had relatively higher income because of which any
decreases in the returns on total equity due to the increasing total
shareholders equity were offset.
Return on Common Equity:
2014
2013
2012
2011
2010
Union
15.85%
14.96%
14.96%
13.9%
12.95%
Norfolk
16.34%
16.94%
16.05%
17.11%
13.20%
This ratio measures the profit a company generates per dollar of

investments that account only for common shareholders. Income
earned from common equity for is different from income from total
equity, in that the equity includes only common shares outstanding,
additional paid-in capital and retained earnings. Both companies seem
to have adequate returns on common equity, but Norfolk generates
more profits from common equity as compared to Union, as it has
very low common equity as compared to Union Pacific.
Sales to Fixed Assets:
Union
Norfolk
2014
2013
2012
2011
2010
0.53
Times
0.43
Times
0.51
Times
0.43
times
0.51
times
0.44
times
0.50
times
0.47
times
0.45
Times
0.41
Times
47
Also known as the fixed asset turnover ratio, this ratio measures a
companys ability to generate sales dollars from fixed assets. Union
Pacific had the highest fixed assets turnover in 2014 (0.53 times), which
means it grew over the five years. Norfolk Southerns sales to fixed asset
ratio decreased in 2012, due to increase in property, plant and equipment
and other long-term investments and decrease in net income. It
continued decreasing in 2013 and remained the same. Hence, Union
Pacific has better chances of generating profit by the usage of its fixed
assets as compared to Norfolk Southern.
48
5. Risk Analysis
In this section of the report, we will be analyzing liquidity and solvency
for Union Pacific Railroad and Norfolk Southern Railway.
Solvency and liquidity help understand a companys financial state.
However, they both differ in definition. Solvency is a companys ability
to meet its long-term financial obligations whereas liquidity refers to the
companys ability to pay off short-term debts as well as its ability to sell
assets quickly to increase cash.
A good company is both solvent and has appropriate liquidity. We will
analyze liquidity and solvency for Union Pacific Railroad and Norfolk
Southern Railway using a number of ratios.
5.1 Liquidity Analysis:
Current Ratio
2014
2013
2012
2011
2010
Union
1.24
1.05
1.16
1.12
1.16
Norfolk
1.56
1.33
1.08
1.03
1.19
The above ratios indicate that both Union Pacific and Norfolk Southern
have enough current assets to pay off their short-term debts. However,
Norfolk Southern has better liquidity as its current ratio in 2014 is higher
than that of Union Pacific, which means it has a larger fraction of
current assets relative to its current liabilities as compared to Union.
Higher current ratio means the company has higher capability of settling
current obligations.
49
Quick Ratio
2014
2013
2012
2011
2010
Union
0.85
0.75
0.77
0.79
0.77
Norfolk
1.14
1.07
0.85
0.76
0.78
The quick ratio determines the companys ability to pay its short-term
debts with its assets that are most liquid. The higher the quick ratio, the
more liquid a company is. Both companies seem to have higher quick
ratios which mean they can use more of their liquid assets to finance
short-term obligations.
Accounts Receivable Turnover
Union
Norfolk
2014
2013
2012
2011
2010
15.85
times
11.13
Times
16.002
times
10.54
times
15.32
times
10.36
times
14.09
times
12.2
times
18.34
times
12.09
times
Accounts Receivable Turnover in Days

2014
2013
2012
2011
2010
Union
25 days
24 days
23 days
26 days
26 days
Norfolk
33 days
35 days
35 days
30 days
30 days
Accounts receivable turnover indicates the time taken by the firm to

collect accounts receivables in cash. It measures the effectiveness of
extending credit and collecting cash on that credit.
50
Union Pacifics turnover ratio has declined from 18.34 in 2010 to 15.85
in 2014. Even though its not a significant decline, it shows that union
pacific is collecting their receivables slower in 2014 as compared to
2013. Norfolks turnover ratio has declined in a similar pattern.
Union Pacific collects their receivables in a short time compared to
Norfolk. This implies that union pacific has stricter credit policies than
Norfolk. This could lead to a loss in revenue.
Revenues to Cash ratio
2014
2013
2012
2011
2010
Union
15.9 times
17.6 times
18.3 times
16.9 times
11.6 times
Norfolk
9.6 times
10.7 times
23.8 times
20.3 times
10.4 times
Days Revenues held in Cash

2014
2013
2012
2011
2010
Union
23 days
21 days
20 days
22 days
32 days
Norfolk
38 days
34 days
16 days
18 days
35 days
Revenues to Cash ratio indicate the amount of revenues held as cash in

hand. Lenders usually prefer a smaller ratio (more number of days) as
compared to company managers who prefer a high ratio so as to avoid
idle cash.
Union Pacifics ratio increased from 11.6 in 2010 to 18.3 in 2012. This
is due to increase in revenue which was more than increase in average
cash. This led to decrease in days revenue held as cash by 12 days and
increase in short term liquidity risk. From 2012 to 2014, the ratio
51
decreased slightly due to built-up balances in cash. This is an indication

of reduction in short term liquidity risks.
On the other hand for Norfolk, the ratio increased by more than 2 times
from 2010 to 2012 which was mainly due to the reduction in cash
balances. Since 2012, the tremendous increase in cash led to decrease in
the ratio, thereby reducing the short term liquidity risk.
From the above table, it is clear that Norfolk has a lower ratio (more
number of days revenues held as cash) than Union Pacific, i.e. short term
liquidity risk for Union Pacific is high.
5.2 Solvency Analysis:

Debt-to-equity ratio
2014
2013
2012
2011
2010
Union
148%
134%
137%
143%
143%
Norfolk
168%
188%
211%
188%
164%
Debt to equity ratio measures the financial leverage of a company. It

indicates to what extent the company uses debt to finance its assets
relative to shareholders equity.
From 2010 to 2014, Union Pacific has been able to maintain a steady
debt to equity ratio. Whereas, for Norfolk in 2012, the increase in
Accumulated other comprehensive loss led to a decrease in total
stockholders equity which resulted in an increased debt-to-equity ratio
in that year.
Norfolks ratio is slightly higher than Union Pacifics. This is an
indication that Norfolk faces comparatively higher risk.
52
Debt-to-assets ratio
2014
2013
2012
2011
2010
Union
59%
57%
59%
59%
54%
Norfolk
63%
65%
68%
65%
62%
The debt to asset ratio indicates to what extent assets are financed by
liabilities, mainly payables and long term debt.
Debt to asset ratios for both the firms has increased slightly over the past
5 years. In 2014, around 59% of the assets of Union Pacific were
financed by debt as compared to 62% of Norfolk. Since both the
companies have their ratios below 100%, they are in a good position at
present, though Norfolk is slightly less solvent than Union Pacific.
Interest Coverage Ratio
Union
Norfolk
2014
2013
2012
2011
2010
19.3
times
10.2
times
17.8
times
10.0
times
16.1
times
10.1
times
13.0
times
9.3
times
10.8
times
8.5
times
The interest coverage ratio measures the ability of a company to pay

interest on its outstanding debts. As shown above, both companies seem
to generate more than enough earnings to cover their interest expenses.
This means that they face relatively lower risk and can easily get bank
financing. When compared, Union Pacific has higher interest coverage
capabilities.
53
Other ratios related to the industry:

Operating Ratio
2014
2013
2012
2011
2010
Union
63.51%
66.10%
67.77%
70.73%
70.64%
Norfolk
69.24%
71.04%
71.70%
71.24%
71.88%
Operating ratios can be defined as companys operating expenses as a

percentage of its operating revenues. An operating ratio of 80% or lower
is considered favorable for railroading. Therefore, both, union pacific
and Norfolk are said to be in a favorable position.
The operating ratio for Union Pacific has decreased from 70.64% in
2010 to 63.51% in 2014. This shows that Unions management has been
more efficient in reducing their operating expenses over the years.
The operating ratio for Norfolk hasnt decreased much from 71% in
2010 to 69% in 2014. Even though it is below favorable 80%, the
company has not been successful in managing their expenses efficiently
as compared to Union Pacific.
54
Long Term debt to Operating Property

2014
2013
2012
2011
2010
Union
23.81%
20.28%
20.96%
21.78%
23.54%
Norfolk
32.22%
33.41%
32.76%
30.20%
28.27%
Long term debt to operating property measures a firms operating

capacity. Due to heavy investment in operating assets such as roads,
land, equipment, etc. this ratio plays an important role as it gives a
measure of sources of fund with which it is obtained.
Over the years, unions ratio has changed materially
When comparing between the two firms, Norfolk places a heavy reliance
on debts to purchase assets as compared to union pacific.
Operating Revenue to Operating Property

2014
2013
2012
2011
2010
Union
51.84%
50.20%
49.83%
48.97%
44.35%
Norfolk
41.97%
42.20%
42.90%
45.66%
40.96%
Operating revenue to operating property indicates the ability to generate

dollar revenue per dollar of property. Higher ratio means that firm is
able to generate more dollar revenue per dollar of property.
The above table shows that there has been a material increase in the ratio
of union pacific from 2010 to 2014. Whereas for Norfolk, the ratio
increased by 5% in 2011. Since then, the revenue generated hasnt
55
increased significantly as compared to increase in operating property,

due to which there has been a decline in the ratio.
When compared between the two firms, Union Pacific has been more
successful in generating more dollar revenue than Norfolk.
56
Relating the Analysis

The primary objective of a company is to reduce risk while they increase
their profits. A company will need to have an adequate level of liquidity
in order to maintain the day to day cash flow such as wages and salaries,
for the business to continue in operation. It is also required to ensure
survival of the business in long term. A profitable company can still fail
if it doesnt have enough cash to meet its liabilities.
Earlier, we analyzed the cash flows, profitability, liquidity and solvency
of Union Pacific Corporation and Norfolk Southern Corporation.
Union Pacific Railroad adapted certain strategies to increase its
profitability. It had increasing net income and cash inflows from
operations, which is a good sign as the company could easily maintain
and grow its operations. Its operating cash flow per share increased by
$13.03, which is a better indication of Union Pacifics profitability as
compared to its earnings per share ratio as it is believed to be more
accurate. However, it had increasing earnings per share as well. The
company had almost 95% of its revenues from freight transportation
which indicated that the company made the most out of its primary
activities. It continued investing in more of its properties, plants and
equipments. The company had increasing returns on total assets and
operating assets which was another indication of a healthy and profitable
company, as it showed that company was effective in using its assets to
generate sales. As a result of increasing net income, the company had
higher income earned from equity even though total shareholders equity
increased. The company also maintained good debt-to-assets ratio which
saves it from potential risk. Overall, Union Pacific seems to be a
growing company, with adequate profitability and is liquid and solvent
enough to keep out of any risk for a long period of time.
57
On the other hand, Norfolk Southern which was established in 1894 is

one of the main transporters of coal in North America. It uses
environment friendly ways to carry out its operating activities. Net
income for Norfolk Southern decreased by 9% in 2012 as operating
revenues decreased. This happened because revenues from coal
transportation fell by 17% in 2012. However, net income continued
increasing in the following years. As a result of this decrease in 2012,
earnings per share decreased slightly. Coal and Intermodal transportation
made up most of Norfolks operating revenue and yet again, the
company had a high percentage of its assets from properties, plants and
equipments which is typical of any railroad company. Its net profit
margin decreased in 2012 and the asset turnover decreased over the five
years, resulting in slow growth in returns on total assets. It had adequate
returns on investment, total equity and common equity. Norfolk had
higher returns on common equity as compared to Union as it had
relatively lower common equity. It had decreasing fixed asset turnover
in 2012, 2012 and 2014 which showed that the company failed to use its
fixed assets investments to effectively generate sales dollars. It does
seem to be liquid as its current ratio has better chances of settling its
current debt. The company has higher debt to equity ratios, which could
lead to solvency risk as it indicates that the company is majorly
dependent on debt to finance assets relative to stockholders equity. It
also has slightly higher debt to assets ratios which could cause trouble to
the company if it continues to finance more of its assets through debt.
The company is profitable and liquid, but may be subject solvency risk.
58
Railroad Accounting: Strengths and Weaknesses

The operations carried out by railroad companies are subject to various
state, federal and local regulations. Although they analyze their revenues
by commodities, their net financial results are analyzed as one
component due to the coherent nature of railway networks. For both
Norfolk and Union, freight revenues play a huge role in maintaining
good operations. Of all the operating expenses, fuel expenses are the
main. The companies have to deal with any future increases in fuel price
per gallon, as was the case in 2011. Railway companies can have higher
fuel surcharge if they manage to increase their volumes and improve fuel
recovery provisions.
Fuel prices are hard to project as they are sensitive to global and U. S.
domestic demand, refining capacities and geopolitical events. As
Americas economy is expected to continue improving in 2015, the
lookout for energy markets is unclear, which could cause both threats
and opportunities for the railroad companies. Working capital surplus
could improve liquidity for railway companies. They also follow certain
accounting policies that involve judgment and estimations. If these
estimations differ largely from actual results, the impact on the
companys financial statements could be material.
59
Conclusion
The purpose of our project was to analyze and compare the financial
statements of Union Pacific and Norfolk Southern for five years. We did
so by calculating their rates of return, various solvency and liquidity
ratios, operating cash flow ratios and by highlighting their major
strengths and weaknesses. This analysis is meant to provide for investors
an insight into the financial performance of the two companies. The
following points where taken into consideration while comparing the
analyzed data:
The cash flow analysis for Union Pacific showed that the company
is actively maturing and is in a good position as it was able to
generate increasing amounts of cash from its operations every year
and also managed to pay back a lot of its debts. Norfolk on the
other hand, reported lower net income in 2012 which had a major
impact on most items, including its cash inflows from operating
activities.
When comparing both companies, Union Pacific had higher
operating cash flow per share as compared to Norfolk southern. It
was also better at using its operating cash inflows to make
payments for its total debt as compared to Norfolk. Norfolk had a
very high amount of operating cash flow to current maturities of
long-term debt as it had very low amount of current maturities,
even though cash flows from operating activities decreased in
2014.
Since both companies have complex capital structures, they report
both basic and diluted earnings per share. Norfolk had higher
earnings per share as compared to Union, which shows it is more
profitable. This could lead to potential increases in the stock price
of the company.
60
Both companies managed to effectively use their assets to generate

earnings, with Union generating slightly higher returns on total
assets as compared to Norfolk. It also had higher profit margin and
total asset turnover which showed that it was better at utilizing its
assets than Norfolk when it came to maximizing its profits.
Union had higher returns on investment as compared to Norfolk,
which is another indication that is more profitable.
Union generates more profit from its shareholder investments as
compared to Norfolk that is it generates more profit per dollar of
stockholders equity. However, Norfolk has comparatively higher
returns on common equity, which shows that the company
effectively reinvests its investors capital.
Union had slightly higher fixed asset turnover which is a good sign
as it shows that the company effectively uses its fixed-asset
investments to generate sales dollars.
Both companies have more or less the same current ratios. Norfolk
has slightly higher current ratio in 2013 and 2014 as it has fewer
amounts of current liabilities compared to that of Union and
increasing current assets. They also have adequate quick ratios
with Norfolk having slightly higher quick ratios.
Union Pacific had higher accounts receivable turnover which
means it collects its receivables in a shorter time period than
Norfolk, which means it is comparatively more efficient in
managing its issued credit and credit collections.
Both Union and Norfolk could easily make interest payments as
they had high interest coverage ratios every year. But Union is
definitely better than Norfolk as it covered the interest payments
19 times in 2014 as compared to Norfolk, which covered interest
payments only 10 times.
61
Forecasting
UNION PACIFIC CORPORATIONS
Freight revenues are expected to increase for the next two years which
will result in increase in operating revenues. Decreasing fuel prices
might result in further decrease in fuel expenses while compensation and
benefits for employees increase. Following the trend of increasing net
income during the 5 year period and the above assumptions, Net Income
is expected to be around $6000m for year ending on 31st December 2015
and around $7100m for the year ending on 31st December 2016.
NORFOLK SOUTHERN CORPORATIONS
The company is expecting coal revenues to decline due to decreased
volume. In 2014, coal revenues represented around 21% of the total
operating revenues while it was 23% in 2013. Chemical revenues are
expected to increase due to increased shipments of coal and petroleum
gas. Norfolk is expecting agriculture, consumer products and
government revenues to remain steady while they anticipate a decline in
metal and constructions. Higher intermodal revenues are expected while
revenues from paper, clay and forest products decline.
With regards to operating expenses, compensation and benefits are
expected to increase significantly while changes in other expenses will
not be significant. With these assumptions, the net income is for the year
ending on 31st December 2015 and 31st December 2016 is expected to be
around $2150m and $23100m respectively.
62
Appendix A - Calculations
1. Cash flow analysis:
Operating cash flow/ Current maturities of long term debt and notes payable
COMPANY
2010(millions)
2011(millions)
2012(millions)
2013(millions)
2014(millions)
NORFOLK SOUTHERN CO.
2714/358=7.58
3227/50=64.54
3065/50=61.3
3078/445=6.92
2852/2=1426
UNION PACIFIC
4105/239=17.2
5873/209=28.1
6161/196=31.43
6823/705=9.67
7385/462=15.98
Operating cash flow to total debt

Operating cash flow/total debt
COMPANY
2010(millions)
2011(millions)
2012(millions)
2013(millions)
2014(millions)
2714/7025=0.38
3227/7540=0.42
3065/8682=0.42
3078/9448=0.32
2852/9026=0.31
UNION PACIFIC
4105/9242=0.44
5873/8906=0.65
6161/8997=0.68
6823/9577=0.71
7385/11480=0.64
Operating cash flow per share

Operating cash flow less preferred dividend/diluted weighted average common shares
outstanding
COMPANY
2010(millions)
2011(millions)
2012(millions)
2013(millions)
2014(millions)
2714-1/366.5=7.40
3227-1/345.5=9.33
3065-1/320.9=9.54
3078-1/311.9=9.86
2852-2/9026=0.31
UNION PACIFIC
4105/502.9=5.16
5873/489.8=11.99
6161/476.5=12.92
6823/465.8=14.64
7385/901.1=8.19
Operating cash flow to cash dividends

Operating cash flow/cash dividend
COMPANY
2010(millions)
2011(millions)
2012(millions)
2013(millions)
2014(millions)
2714/514=5.28
3227/576=5.60
3065/624=4.91
3078/637=4.83
2852/687=4.15
UNION PACIFIC
4105/602=6.81
5873/837=7.01
6161/1146=5.37
6823/1333=5.11
7385/1632=4.52
63
2. Profitability analysis:
Return on assets
Net income before non-recurring items/average total assets
UNION PACIFIC
2010
2011
2012
net income before nonrecurring items2,780
3,292
3,943
average total assets
42636
44092 46124.5
Return on Assets
6.5%
7.5%
8.5%
NORFOLK SOUTHER
SOUTHERN
2010
net income before nonrecurring items1,496
27784
Return on Assets
5.4%
2011
1,916
28368.5
6.8%
2012
1,749
29440
5.9%
2013
4,388
48442
9.1%
2014
5,180
51223.5
10.1%
2013
1,910
31412.5
6.1%
2014
2,000
32862
6.1%
Net profit margin

Adjusted net income/sales
Union pacific
net sales
net income before nonrecurring items
net profit margin
2010
16,965
2,780
16.39%
2011
19,557
3,292
16.83%
2012
20,926
3,943
18.84%
2013
21,963
4,388
19.98%
2014
23,988
5,180
21.59%
NORFOLK SOUTHER
SOUTHERN
net sales
net income before nonrecurring items
net profit margin
2010
9,516
1,496
15.72%
2011
11,172
1,916
17.15%
2012
11,040
1,749
15.84%
2013
11,245
1,910
16.99%
2014
11,624
2,000
17.21%
Total asset turnover

Sales/average total assets
UNION PACIFIC
net sales
Total Asset Turnover
2010
16,965
42636
0.40
2011
19,557
44092
0.44
2012
20,926
46124.5
0.45
2013
21,963
48442
0.45
2014
23,988
51223.5
0.47
NORFOLK SOUTHER
SOUTHERN
net sales
Total Asset Turnover
2010
9,516
27784
0.34
2011
11,172
28368.5
0.39
2012
11,040
29440
0.38
2013
11,245
31412.5
0.36
2014
11,624
32862
0.35
64
Return on investment
Net income before non-recurring items and non-controlling interest + [(interest
expense)*(1-tax rate)/average (long-term liabilities + equity)
UNION PACIFIC
Adjusted Net Income
Average Long-Term Liabilities & Equity
Return on Investment
2010
4824.3
25848.5
18.66%
2011
5635.8
26477
21.29%
2012
6665.75
27549
24.20%
2013
7389.9
29219.5
25.29%
2014
8707.65
30819.5
28.25%
NORFOLK SOUTHER
SOUTHERN
Adjusted Net Income
Average Long-Term Liabilities & Equity
Return on Investment
2010
2667.3
25848.5
10.32%
2011
3213.75
26477
12.14%
2012
3079.75
27549
11.18%
2013
3306.25
29219.5
11.32%
2014
3488.25
30819.5
11.32%
Operating income/average operating assets

Union pacific
2010
2011
Operating Income
4,981
5,724
average operating asset
41283.5
42673
Return On Operating Assets
12.07% 13.41%
2012
6,745
44636
15.11%
2013
7,446
46675
15.95%
2014
8,753
49345
17.74%
NORFOLK SOUTHER
SOUTHERN
Operating Income
Return On Operating Assets
2011
3,213
25961
12.38%
2012
3,124
27099
11.53%
2013
3,257
28849
11.29%
2014
3,575
30096
11.88%
Return on operating assets
2010
2,676
25295.5
10.58%
Operating income margin

Union pacific
Operating Income
net sales
OPERATING INCOME MARGIN
2010
4,981
16,965
29.36%
2011
5,724
19,557
29.27%
2012
6,745
20,926
32.23%
2013
7,446
21,963
33.90%
2014
8,753
23,988
36.49%
NORFOLK SOUTHER
SOUTHERN
Operating Income
net sales
OPERATING INCOME MARGIN
2010
2,676
9,516
28.12%
2011
3,213
11,172
28.76%
2012
3,124
11,040
28.30%
2013
3,257
11,245
28.96%
2014
3,575
11,624
30.76%
65
Operating asset turnover

Net sales/average operating assets
Union pacific
2010
net sales
16,965
41283.5
Operating Asset Turnover
0.41
2011
19,557
42673
0.46
2012
20,926
44636
0.47
2013
21,963
46675
0.47
2014
23,988
49345
0.49
NORFOLK SOUTHER
SOUTHERN
net sales
Operating Asset Turnover
2011
11,172
25961
0.43
2012
11,040
27099
0.41
2013
11,245
28849
0.39
2014
11,624
30096
0.39
2010
9,516
25295.5
0.38
Sales to fixed assets ratio

Net sales/average net fixed assets
Union pacific
2010
net sales
16,965
AVERAGE NET FIXED ASSETS
37727.5
SALES TO FIXED ASSETS
0.45
NORFOLK SOUTHER
SOUTHERN
net sales
AVERAGE NET FIXED ASSETS
SALES TO FIXED ASSETS
2010
9,516
22937
0.41
2011
19,557
39093.5
0.50
2012
20,926
40965.5
0.51
2013
21,963
42873
0.51
2014
23,988
45010.5
0.53
2011
11,172
23850
0.47
2012
11,040
25102.5
0.44
2013
11,245
26190.5
0.43
2014
11,624
27169.5
0.43
Return on total equity

Net income before non-recurring items-dividends on redeemable preferred
stock/average total equity
Union Pacific
2014
2013
2012
2011
net income before non-recurring items
5180
4388
3943
3292
average total equity
21207
20551 19227.5 18170.5
RETURN ON TOTAL EQUITY
24.43% 21.35% 20.51% 18.12%
2010
2780
17282
16.09%
Norfolk Southern
average total equity
2010
1496
10511
14.23%
2014
2000
11848.5
16.88%
66
2013
1910
10524.5
18.15%
2012
1749
9835.5
17.78%
2011
1916
10290
18.62%
Return on common equity

Net income before non-recurring items-preferred dividends/average common equity
Union Pacific
average common equity
2014
5180
32674
15.85%
2013
4388
29327.5
14.96%
2012
3943
26347.5
14.97%
2011
3292
23724.5
13.88%
2010
2780
21451.5
12.96%
Norfolk Southern
average common equity
2014
2000
12238
16.34%
2013
1910
11269.5
16.95%
2012
1749
10893
16.06%
2011
1916
11195.5
17.11%
2010
1496
11340
13.19%
3. Risk analysis:
Current ratio
Current assets/current liabilities
Union Pacific
2014
current assets
4679
current liabilities
3765
CURRENT RATIO
1.24
2013
3990
3791
1.05
2012
3614
3119
1.16
2011
3727
3317
1.12
2010
3432
2952
1.16
Norfolk Southern
current assets
current liabilities
CURRENT RATIO
2013
3075
2305
1.33
2012
2242
2081
1.08
2011
1751
1701
1.03
2010
2471
2082
1.19
2014
2778
1780
1.56
Quick ratio
Cash equivalents + marketable securities +net receivables/current liabilities
Union Pacific
2014
2013
2012
2011
2010
cash and cash equivalents
1586
1432
1063
1217
1086
net receivables
1611
1414
1331
1401
1184
current liabilities
3765
3791
3119
3317
2952
QUICK RATIO
0.85
0.75
0.77
0.79
0.77
Norfolk Southern
cash and cash equivalents
net receivables
current liabilities
QUICK RATIO
2014
973
1055
1780
1.14
67
2013
1443
1024
2305
1.07
2012
653
1109
2081
0.85
2011
276
1022
1701
0.76
2010
827
807
2082
0.78
Accounts receivable turnover

Net sales/average gross receivables
Union Pacific
2014
net sales
23988
average gross receivables
1616
14.84
2013
21963
1415
15.52
2012
20926
1335
15.67
2011
19557
1410
13.87
2010
16965
1189
14.27
Norfolk Southern
net sales
2013
11245
1069.5
10.51
2012
11040
1069
10.33
2011
11172
919
12.16
2010
9516
791.5
12.02
2014
11624
1044
11.13
Accounts receivable turnover in days

365/accounts receivable turnover
Union Pacific
net sales
2014
23988
1616
14.84
25
2013
21963
1415
15.52
24
2012
20926
1335
15.67
23
2011
19557
1410
13.87
26
2010
16965
1189
14.27
26
Norfolk Southern
net sales
2014
11624
1044
11.13
33
2013
11245
1069.5
10.51
35
2012
11040
1069
10.33
35
2011
11172
919
12.16
30
2010
9516
791.5
12.02
30
Cash turnover ratio

Operating revenues/average cash balance
UNION PACIFIC
2010
2011
2012
Revenue
16965
19557
20926
Cash
1086
1217
1063
Avg Cash
1468
1151.5
1140
Rev to Cash
11.6
17.0
18.4
2013
21963
1432
1247.5
17.6
2014
23988
1586
1509
15.9
NORFOLK
2011
2012
11172
11040
276
653
551.5
464.5
20.3
23.8
2013
11245
1443
1048
10.7
2014
11624
973
1208
9.6
Revenue
Cash
Avg Cash
Rev to Cash
2010
9516
827
911.5
10.4
68
Cash turnover in days

365/cash turnover
Revenue
Cash
Avg Cash
Rev to Cash
in days
2010
16965
1086
1468
11.6
32
Revenue
Cash
Avg Cash
Rev to Cash
in days
2010
9516
827
911.5
10.4
35
UNION PACIFIC
2011
2012
19557
20926
1217
1063
1151.5
1140
17.0
18.4
21
20
NORFOLK
2011
11172
276
551.5
20.3
18
2012
11040
653
464.5
23.8
15
2013
21963
1432
1247.5
17.6
21
2014
23988
1586
1509
15.9
23
2013
11245
1443
1048
10.7
34
2014
11624
973
1208
9.6
38
Debt-to-equity ratio
Total liabilities/total shareholders equity
Union Pacific
total liabilities
total shareholders equity
DEBT-TO-EQUITY RATIO
2014
31527
21189
1.49
2013
28506
21225
1.34
2012
27276
19877
1.37
2011
26518
18578
1.43
2010
25325
17763
1.43
Norfolk Southern
total liabilities
total shareholders equity
DEBT-TO-EQUITY RATIO
2014
20833
12408
1.68
2013
21194
11289
1.88
2012
20582
9760
2.11
2011
18627
9911
1.88
2010
17350
10669
1.63
Total liabilities/total assets

Union Pacific
total liabilities
total assets
DEBT-TO-ASSETS RATIO
2014
31527
52716
0.60
2013
28506
49731
0.57
2012
27276
47133
0.58
2011
26518
45096
0.59
2010
25325
43088
0.59
Norfolk Southern
total liabilities
total assets
DEBT-TO-ASSETS RATIO
2014
20833
33241
0.63
2013
21194
32483
0.65
2012
20582
30342
0.68
2011
18627
28538
0.65
2010
17350
28109
0.62
Debt-to-assets ratio
69
Interest coverage ratio

(Recurring earnings + noncash expenses) excluding interest expense, tax expense, equity
earnings and non-controlling interest/interest expense, including capitalized interest
Net Income
interest expense
income tax
depreciation expense
minority interest
INTEREST COVERAGE
Net Income
interest expense
income tax
depreciation expense
minority interest
INTEREST COVERAGE
UNION PACIFIC
2010
2011
2012
2780
3292
3943
602
572
535
1653
1972
2375
1487
1617
1760
10.8
2013
4388
526
2660
1777
2014
5180
561
3163
1904
13.0
16.1
17.8
19.3
NORFOLK
2010
2011
1496
1916
426
455
871
1002
819
862
2012
1749
495
1009
1760
2013
1910
525
1055
1777
2014
2000
545
1134
1904
10.1
10.0
10.2
8.5
9.3
4. Other ratios related to the industry:

Operating ratio
Operating expenses/operating revenues
Union Pacific
2010
2011
operating revenue
16965
19557
operating expenses
11984
13833
operating ratio
70.64% 70.73%
operating revenue
operating expenses
operating ratio
2012
20926
14181
67.77%
2013
21963
14517
66.10%
2014
23988
15235
63.51%
Norfolk Southern
2010
2011
2012
9516
11172
11040
6840
7959
7916
71.88% 71.24% 71.70%
2013
11245
7988
71.04%
2014
11624
8049
69.24%
70
Long-term debt to operating property

Long-term debt/operating assets
Union Pacific
2010
2011
Long term debt
9003
8697
operating assets
38253
39934
long term debt to operating property
23.54% 21.78%
2012
8801
41997
20.96%
2013
8872
43749
20.28%
2014
11018
46272
23.81%
Norfolk Southern
2010
2011
Long term debt
6567
7390
operating assets
23231
24469
long term debt to operating property
28.27% 30.20%
2012
8432
25736
32.76%
2013
8903
26645
33.41%
2014
8924
27694
32.22%
Union Pacific
2010
2011
Operating Revenue
16965
19557
Operating Property
38253
39934
operating revenue to operating assets
44.35% 48.97%
2012
20926
41997
49.83%
2013
21963
43749
50.20%
2014
23988
46272
51.84%
Norfolk Southern
2010
2011
Operating Revenue
9516
11172
Operating Property
23231
24469
operating revenue to operating assets
40.96% 45.66%
2012
11040
25736
42.90%
2013
11245
26645
42.20%
2014
11624
27694
41.97%
Operating revenue to operating property

Operating revenue/operating assets
71
Appendix B Financial Statements

Union Pacific Corporation Consolidated Statements of Income
Union Pacific Corp
2014
2013
2012
Sales/ Revenue
2011
2010
($ in millions)
Agricultural
3,777
3,276
3,280
3,324
3,018
Automotive
2,103
2,077
1,807
1,510
1,271
Chemicals
3,664
3,501
3,238
2,815
2,425
Coal
4,127
3,978
3,912
4,084
3,489
Industrial Products
4,400
3,822
3,494
3,166
2,639
Intermodal
4,489
4,030
3,955
3,609
3,227
$22,560
$20,684
$19,686
$18,508
$16,069
1,428
1,279
1,240
1,049
896
$23,988
$21,963
$20,926
$19,557
$16,965
5,076
4,807
4,685
4,681
4,314
Fuel
3,539
3,534
3,608
3,581
2,486
2,558
2,315
2,143
2,005
1,836
Depreciation
1,904
1,777
1,760
1,617
1,487
1,234
1,235
1,197
1,167
1,142
924
849
788
782
719
$15,235
$14,517
$14,181
$13,833
$11,984
151
128
108
112
54
(561)
(526)
(535)
(572)
(602)
(3,163)
(2,660)
(2,375)
(1,972)
(1,653)
$5,180
$4,388
$3,943
$3,292
$2,780

Other revenues
Operating Expenses
Other
Non-operating Items
Other Income
Interest Expense
Income Taxes
Net Income
72
Union Pacific Corporation Consolidated Balance Sheets

Union Pacific Corp
ASSETS
Current assets:
Accounts receivable
2014
1,586
1,611
712
277
493
1,432
1,414
653
268
223
1,063
1,331
660
263
297
1,217
1,401
614
306
189
1,086
1,184
534
261
367

Investments
Net properties
Other assets
TOTAL ASSETS
4,679
1,390
46,272
375
$52,716
3,990
1,321
43,749
671
$49,731
3,614
1,259
41,997
283
$47,153
3,727
1,175
39,934
260
$45,096
3,432
1,137
38,253
266
$43,088
3,303
462
3,765
11,018
14,680
2,064
3,086
705
3,791
8,872
14,163
1,680
2,923
196
3,119
8,801
13,108
2,248
3,108
209
3,317
8,697
12,368
2,136
2,713
239
2,952
9,003
11,557
1,813
$31,527
$28,506
$27,276
$26,518
$25,325

authorized; 1,110,100,423 and 1,109,657,652 issued;
883,366,476 and 912,001,996 outstanding respectively
Paid-in-surplus
Retained earnings
Treasury stock
2,775
4,321
27,367
(12,064)
(1,210)
$21,189
2,774
4,210
23,901
(8,910)
(750)
$21,225
1,386
4,113
22,271
(6,707)
(1,186)
$19,877
1,386
4,031
19,508
(5,293)
(1,054)
$18,578
1,385
3,985
17,154
(4,027)
(734)
$17,763
$52,716
$49,731
$47,153
$45,096
$43,088

TOTAL LIABILITIES
2013
2012
($ in million)
2011
2010
73
Union Pacific Corporation Consolidated Statements of Cash Flows

for the Years ended on December 31
2014
2013
2012
Operating Activities
2011
2010
$ in millions
Net Income
5,180
4,388
3,943
3,292
2,780
1,904
1,777
1,760
1,617
1,487
895
723
887
986
672
(285)
(226)
(160)
(298)
(483)
(197)
(83)
70
(217)
(518)
(59)
(46)
(80)
(59)
(270)
74
(108)
178
(17)
217
163
(185)
395
243
7,385
6,823
6,161
5,873
4,105
(4,346)
(3,496)
(3,738)
(3,176)
(2,482)
138
98
80
108
67
(274)
(85)
274
85
Adjustments to reconcile net income to cash provided by

operating activities
Depreciation
Deferred income taxes and unrecognized tax benefits
Other operating activities, net
Changes in current assets and liabilities
Accounts receivable, net
Materials and Supplies
Cash provided by operating activities
Investing Activities
Capital Investments
Proceeds from asset sales
Acquisition of equipment pending finance
Proceeds from sale of assets financed
Other investing activities, net
Cash used in investing activities
(41)
(7)
25
(51)
(73)
(4,249)
(3,405)
(3,633)
(3,119)
(2,488)
(3,225)
(2,218)
(1,474)
(1,418)
(1,249)
2,588
1,443
695
486
894
(1,632)
(1,333)
(1,146)
(837)
(602)
(710)
(640)
(758)
(690)
(1,412)
(272)
(98)
Financing Activities
Common shares repurchases
Debt issued
Dividends paid
Debt repaid
Debt exchange
(289)
Other financing activities, net
(3)
(12)
108
86
(2,982)
(3,049)
(2,682)
(2,623)
(2,381)
154
369
(154)
131
(764)
Cash and cash equivalents at beginning of year
1,432
1,063
1,217
1,086
1,850
Cash and cash equivalents at end of year
1,586
1,432
1,063
1,217
1,086
Cash dividends declared but not yet paid
438
356
318
284
183
Capital investments accrued but not yet paid
174
133
136
147
125
39
290
154
(554)
(528)
(561)
(572)
(614)
(2,492)
(1,656)
(1,552)
(625)
(936)
Cash used in financing activities

Net change in cash and cash equivalents
Supplemental Cash Flow Information

Non-cash investing and financing activities:
Capital lease financings

Cash paid during the year for:
Interest, net of amounts capitalized
Income taxes, net of refunds
74
Norfolk Southern Corporations Consolidated Statements of Income

Norfolk Southern Corp
2014
2013
2012
Sales/Revenue
Coal
2011
2010
($ in million)
2,382
2,543
2,879
3,458
2,719
Chemicals
1,863
1,667
1,467
1,368
1,302
Metals/Construction
1,521
1,405
1,446
1,439
1,326
Agr./Consumer/gov't
1,498
1,467
1,335
1,241
1,013
Automotive
1,004
984
897
780
648
794
795
775
756
712
6,680
6,318
5,920
5,584
5,001
2,562
2,384
2,241
2,130
1,796
11,624
11,245
11,040
11,172
9,516
2,897
3,002
2,960
2,974
2,708
1,687
1,629
1,604
1,610
1,477
Fuel
1,574
1,613
1,577
1,589
1,079
Depreciation
951
916
916
862
819
940
828
859
924
757
8,049
7,988
7,916
7,959
6,840
3,575
3,257
3,124
3,213
2,676
104
233
129
160
153
Interest Expense
(545)
(525)
(495)
(455)
(462)
3,134
2,965
2,758
2,918
2,367
(1,134)
(1,055)
(1,009)
(1,002)
(871)
Net Income
$ 2,000
$ 1,910
$1,749
$1,916
$1,496
Paper/clay/forest
Intermodal
Operating Expenses
Other income
75
Norfolk Southern Corporations Consolidated Statements of Balance Sheets

Norfolk Southern Corp
ASSETS
Current assets:
Accounts receivable
Investments
Net properties
Other assets
TOTAL ASSETS
Accounts payable
Short-term debt
Long-term debt
Other liabilities
TOTAL LIABILITIES
2014
2012
$ in millions
2011
2010
1,055
236
167
347
2,778
2,679
27,694
90
$33,241
1,443
118
1,024
223
180
87
3,075
2,439
26,645
324
$32,483
653
15
1,109
216
167
82
2,242
2,300
25,736
64
$30,342
276
25
1,022
209
143
76
1,751
2,234
24,469
84
$28,538
827
283
807
169
145
240
2,471
2,193
23,231
304
$28,199
1,233
100
217
228
2
1,780
8,924
1,312
8,817
$20,833
1,265
100
225
270
445
2,305
8,903
1,444
8,542
$21,194
1,362
200
206
263
50
2,081
8,432
2,237
7,832
$20,582
1,092
100
207
252
50
1,701
7,390
2,050
7,486
$18,627
1,181
100
199
244
358
2,082
6,567
1,793
7,088
$17,530

Retained income
310
2,148
(398)
10,348
$12,408
310
2,021
(381)
9,339
$11,289
315
1,911
(1,109)
8,643
$9,760
332
1,912
(1,026)
8,693
$9,911
358
1,892
(805)
9,224
$10,669
$33,241
$32,483
$30,342
$28,538
$28,199
308,878,402 shares, respectively, net of treasury
shares
973
2013
76
Norfolk Southern Corporations Consolidated Statements of Cash Flows

for the Years ended on December 31
2014
2013
2012
2011
2010
$ in millions
Operating Activities
Net Income
2,000
1,910
1,749
1,916
1,496
Depreciation
956
922
922
869
826
294
262
366
527
312
(13)
(104)
(6)
(32)
(42)
Accounts receivable
(31)
85
(64)
(215)
(41)
Materials and Supplies
(13)
(7)
(7)
(40)
(5)
(260)
(5)
(6)
14
(1)
Current liabilities other than debt
53
82
68
126
Other - net
(134)
10
29
120
43
Cash provided by operating activities
2,852
3,078
3,065
3,227
2,714
Property additions
(2,118)
(1,971)
(2,241)
(2,160)
(1,470)
Property sale and other transactions
114
144
192
84
97
Investments, including short term
(104)
(130)
(23)
(135)
(504)
Investment sales and other transaction
106
63
78
439
421
Cash used in investing activities
(2,002)
(1,894)
(1,994)
(1,772)
(1,456)
Dividends paid
(687)
(637)
(624)
(576)
(514)
Common stock issued
130
131
89
120
89
Purchase and retirement of Common Stock
(318)
(627)
(1,288)
(2,051)
(863)
Proceeds from borrowing , net
200
989
1,491
1,101
350
Debt repayments
(645)
(250)
(362)
(600)
(489)
Cash used in financing activities
(1,320)
(394)
(694)
(2,006)
(1,427)
Net change in cash and cash equivalents
(470)
790
377
(551)
(169)
Cash and cash equivalents at beginning of year
1,443
653
276
827
996
Cash and cash equivalents at end of year
973
1,443
653
276
827
Interest, net of amounts capitalized
522
492
473
435
453
Income taxes, net of refunds
1,102
735
618
289
602
Reconciliation of net income to net cash provided by operating

activities
Gains and losses on properties and investments

Changes in current assets and liabilities
Investing Activities
Financing Activities
Supplemental Cash Flow Information

Cash paid during the year for:
77
References:
Union Pacific http://www.up.com/

Norfolk Southern http://www.nscorp.com/
Securities Exchange Commission http://www.sec.gov/
Investopedia http://www.investopedia.com/
Wikipedia www.wikipedia.com
Work Distribution
Ayesha
Value chain analysis, Porters five forces, company strategies
Fatema
Profitability Analysis
Shameem Cash Flow Analysis, Forecasting
Naveed
Risk Analysis
78

Acc 411 (Financial Statement Analysis)

Uploaded by

Copyright:

Available Formats

Acc 411 (Financial Statement Analysis)

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Acc 411 (Financial Statement Analysis)

Uploaded by

Copyright:

Available Formats

University of Bahrain

College of Business Administration

Financial Statements Analysis:

2. Six Steps in Financial Statement Analysis .......................................................................7

3. Relating the Analysis ......................................................................................................57

Union Pacific Railroad

Norfolk Southern Railway

Six Steps in Financial Statement

1. Identify the Economic Characteristics and Competitive

1.1 The Value Chain Analysis:

1.2 Porters Five Forces Classification Framework Applied to the

Threat of New Entrants:

Industry Rivalry: High

Buyer Power: High

1.3 Strategies Employed by Union Pacific Railroad and

As for Norfolk Southern, it exercises the following strategies to keep its

3. Cash Flow Analysis

UNION PACIFIC CORPORATIONS AND SUBSIDIARIES (in millions)

activities. The total capital investments in cash increased from $2.5

Norfolk Southern Railway:

NORFOLK SOUTHERN CORPORATIONS AND

CASH FLOW FROM

CASH FLOW FROM

NON WORKING CAPITAL

NORFOLK SOUTHERN CORPORATIONS AND SUBSIDIARIES (in millions)

Net cash used in financing activities increased in 2011 due to increased

1. Operating cash flow/Current maturities of long-term debt and

Diluted Earnings per Share Analysis:

4.2 Common Size Analysis:

Income Statement for Union Pacific:

The common size income statements measure all line items as a

On the other hand, wages and benefits to employees made up most of

Balance Sheet for Union Pacific:

Common shareholders' equity

Total liabilities and common shareholders' equity

Similarly, common size balance sheets express all line items as a

Income Statement for Norfolk Southern:

Coal and intermodal transportation dominate the operating revenues

carloads of liquefied petroleum gas and higher plastic volumes

Balance Sheet for Norfolk Southern:

Liabilities and Common Shareholders' Equity

Total liabilities and stockholders' equity

Income Statement for Union Pacific:

Common size financial statements measure all elements as a percentage

Total operating expenses also increased constantly from 2010 to 2014;

Balance Sheet for Union Pacific:

1,586 $ 1,432 $ 1,063 $ 1,217 $ 1,086

Liabilities and Common Shareholders' Equity

$ 31,527 $ 28,506 $ 27,276 $ 26,518 $ 25,325

Common shareholders' equity

Total liabilities and common shareholders' equity

$ 52,716 $ 49,731 $ 47,153 $ 45,096 $ 43,088

Moving on to liabilities, total current liabilities decreased by 6% in

Income Statement for Norfolk Southern:

According to Norfolk Southern Railway, their main sources of revenues

happened due to improvement in domestic volume (including truckload

Balance Sheet for Norfolk Southern:

Liabilities and Common Shareholders' Equity

Total liabilities and stockholders' equity