Analysis of Financial Statements
FedEx was established by Fredrick W. Smith in 1971 as Federal Express Corporation. The company is the largest in the world with operations in more than 220 territories and countries (Ferrell & Hartline, 2011). FedEx Express provides air service within the United States as well as at international markets. FedEx Express is the largest express transportation company in the world (FedEx, n.d) FedEx Express carries more freight when compared to other airlines. In addition, the company has the largest fleet of wide bodied civil aircraft and the largest civil aircraft fleets across the globe (Ferrell & Hartline, 2011). FedEx’s financial performance in the last five years has been excellent because the company has made profits. The paper provides an analysis of the financial statements of FedEx express for the last three years to make decisions on the strength and adaptability of a business.
Income Statement provides the financial position of the company in terms of earning per share, profits, and revenues. With regard to FedEx, the revenues and earnings increased in the last three years as a result of improved international export volume, U.S. domestic, and package yields. Though the FedEx was not hit by the 2008 financial crisis, the company successfully set a number of goals to increase its profits. For example, the FedEx’s long-term goals has been to increase profitable revenue, realize more than10% operating margin, and achieve 10%–15% annual earnings per share(EPS) growth (Schmidt, 2015). Financial performance for FedEx between 2013 and 2015 is provided in Figure 1 below.
Figure 1: FedEx Financial Performance. Source: Schmidt (2015).
FedEx’s revenue has been increasing by 37% for the past 5 years from as a result of acquisitions to $47.5 billion in 2015 from estimated $34.7 billion in 2010. However, in between 2013 and 2014, there was a light decline in revenues. Other than acquisitions of GLENCO and other companies (FedEx Annual Report, 2016), the increase in FedEx’s revenue can be linked to industries and nation economic recovery. FedEx has been generating strong cash flows successfully in the last three years which implies that the company is liquid. For instance, the Cash and cash equivalents of FedEx summed $3.8 billion in 2015, in comparison to $2.9 billion in 2014 and this was lower to 2013 ($ 4.9 billion) (FedEx Annual Report, 2015). The decline from 2013 to 2014 was attributed to capital expenditures used in the purchase of aircrafts. Cash flows from operating activities for FedEx increased by $1.1 billion in 2015 as a result of the higher segment operating income (FedEx Annual Report, 2015). Thus, FedEx can meet its liquidity needs such as capital expenditure requirement, debt payments, and working capital.
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FedEx Corp., Gross Profit Margin |
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May 31, 2015 |
May 31, 2014 |
May 31, 2013 |
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Selected Financial Data (USD $ in millions) |
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Gross profit |
30,469 |
28,515 |
27,839 |
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Revenues |
47,453 |
45,567 |
44,287 |
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Gross profit margin |
64.21% |
62.58% |
62.86% |
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Benchmarks |
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Gross Profit Margin, Competitors |
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Union Pacific Corp. |
79.67% |
74.58% |
73.37% |
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United Parcel Service Inc. |
77.82% |
74.66% |
75.28% |
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Gross profit margin is applied to indicate the percentage of revenue which is available to enable the company to cover its operations and other expenditures. |
FedEx Corp.'s gross profit margin declined a bit from 2013 to 2014 and from 2014 to 2015 such as from 62.86% to 62.58% to 64.21% |
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FedEx Corp., Operating Profit Margin |
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May 31, 2015 |
May 31, 2014 |
May 31, 2013 |
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Selected Financial Data (USD $ in millions) |
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Operating income |
1,867 |
3,446 |
2,551 |
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Revenues |
47,453 |
45,567 |
44,287 |
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Ratio |
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Operating profit margin |
3.93% |
7.56% |
5.76% |
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Operating profit margin is calculated by dividing operating income by revenue. |
FedEx Corp.'s operating profit margin increased between 2013 and 2014, but declined in between from 2014 to 2015 from 7.56% to 3.93% and this was attributed to increased operations and changes in FedEx Express which has been challenging (Schmidt, 2015). |
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FedEx Corp., Net Profit Margin |
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May 31, 2015 |
May 31, 2014 |
May 31, 2013 |
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Selected Financial Data (USD $ in millions) |
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Net income |
1,050 |
2,097 |
1,561 |
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Revenues |
47,453 |
45,567 |
44,287 |
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Ratio |
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Net profit margin |
2.21% |
4.60% |
3.52% |
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Net profit margin = 100 × Net income ÷ Revenues |
FedEx Corp.'s net profit margin increased from 3.42% in 2013, but declined in between 2014 and 2015 from 4.60% to 2.21%. The decline was attributed to decrease in net income from the FedEx Express operations in 2015 after changes were made on that business portfolio |
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The financial strength of a company is examined via evaluation of its capital structure, and this encompasses of equity and debt financing (Brigham & Bhrhardt 2013). Ghosh (2012) noted that capital structure of a company influences its financial performance in terms of profitability and ability to repay its debts. The financial strength of FedEx is attained by evaluating its performance, including liquidity, solvency, and profitability (Beckert 2005; Koller 2011). The liquidity is based on current and quick ratios of the company which ensures that the company remains liquid and can settle its debts (Peterson 2012). Table and figure below below presents liquidity and financial health of FedEx.
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Liquidity/Financial Health |
2013 |
2014 |
2015 |
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Current Ratio = current assets/current liabilities |
1.96 |
1.82 |
1.84 |
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Quick Ratio = (cash plus short-term marketable investments plus receivables)/by current liabilities. |
1.73 |
1.58 |
1.59 |
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Debt/Equity = (cash plus short-term marketable investments)/ current liabilities. |
0.16 |
0.31 |
0.48 |
FedEx Corp.'s current ratio declined from 2013 (1.96) to 1.82 in 2014, but increased to 1.84 in 2015. The decline was as a result of reduced assets, but increased after the company acquired new companies. The quick ratio declined in between 2013 and 2014, but increased between 2014 and 2015. Debt/equity ratio increased from 0.16 in 2013 , 0.31, and 0.48 in 2015, and indication that FedEx can finance its debts.
To sum it up, based on the financial analysis derived from the financial statements (Balance Sheet, Income Statement, and cash flows), the company has been performing excellent in the last three years. Thus, FedEx is strong in terms of its financial health and adaptable business because it has the capability to pay its debts in short-term and long term periods.
References
Beckert, P. (2015). Measuring business financial strength. Retrieved from http://www.pinnacle-
business.com/newsletter/Financial%20Review%20By%20Pinnacle%20Consultants%20042611.htm.
Brigham, E., & Ehrhardt, M. (2013). Financial management; theory and practice. New York, NY: Cengage Learning.
FedEx. (n.d). FedEx acquisition history. Retrieved from http://investors.fedex.com/company-overview/Acquisition-History/default.aspx.
FedEx Annual Report. (2015). 2015 FedEx Annual Report A Transformative Year. Retrieved from http://s1.q4cdn.com/714383399/files/doc_financials/annual/FedEx_2015_Annual_Report.pdf
FedEx Annual Report. (2016). 2016 FedEx Annual Report. Retrieved from http://s1.q4cdn.com/714383399/files/doc_financials/annual/FedEx_2016_Annual_Report.pdf.
Ferrell, O. C., & Hartline, M. D. (2011). Marketing strategy. Australia, AU: South-Western Cengage Learning.
Ghosh, A. (2012). Capital structure and firm performance. New Jersey, NJ: Transaction Publishers.
Koller, T., Goedhart, M., & Wessels, D. (2011). Valuation; Measuring and managing the value of companies, US, McKinsey & Company.
Peterson, P. (2012). Analysis of financial statements. USA: Wiley Finance.
Schmidt, A. (2015). FedEx: A Global Leader in the Express Delivery Market. Retrieved from http://marketrealist.com/2015/06/fedex-college-paper-idea-turned-delivery-giant/.
Ratings
