FedEx Freight organization
Table of Contents
1.Organizational context 3
2.Recent Financial performance 4
3. Current Financial health 7
4.References 11
4.Appendix 12
1.Organizational context
Key goods and services, for whom, where, and why.
FedEx Freight is an American (LTL) freight services provider. The company provides information technology, technical support, sales, communication, collection and billing, marketing, information technology, customer service, and back-office functions that globally back up transportation segments for individuals and businesses in over 220 territories (FedEx 2020). Due to the consumer’s demand for quality service, a need for quality, accurate, and fast shipment logistics systems is essential ( Gabriella 2016). Good customer service creates a good reputation for a company as a brand, promoting business growth through increased business.
How do these features of the organization help set the boundaries for business decisions?
The company provides businesses and customers globally, with an extensive portfolio of e-commerce, transportation, and business services ( FedEx 2020). Besides, the company, through a collaborative competition and management, provides integrated business applications under the FedEx brand. This helps the company make decisions based on each customer base as the requirements of customers vary from one region to the other ( FedEx 2020)
FedEx organization and management.
FedEx provides its services through three diverse segments in the transportation, pick up and delivery services market. These segments include FedEx Ground, FedEx Home Delivery, and FedEx Smartpost. FedEx Ground is involved in the delivery and pickup of boxes and small packages that weigh not more than 150 pounds ( Gabriella 2016). FedEx Home Delivery is a segment in the United States that is specifically for packaging services in the residential areas. This market segment operations are flexible but mainly involve Saturday deliveries, evening deliveries, and delivery by appointment. Finally, the FedEx Smartpost segment in the United States involves the consolidation of lofty volumes of low weight business to consumers packages that are less-time sensitive. The United States Postal service mostly does final delivery through FedEx’s distribution hubs (FedEx 2020).
Effects of FedEx organization and management on accounting and financial information and subsequent decision making
The operating segments’ results follow up an internal management reporting used in evaluating performance and coming up with operating decisions. Therefore, FedEx records its interests expenses, service costs, expected income on plan assets at its segments. Besides, the actuarial profits and losses recognition is reflected at the corporate level’s segment results.
2.Recent Financial performance
Revenue
For the past three years,2017, 2018, and 2019, FedEx has reported a consistently increasing revenue; $60.32, $65.45, and $69.69 billion in 2018. A consistently growing revenue is an indication that a company is financially healthy (Kokemuller 2017). Established companies mainly grow their revenue through service and marketing tips, marketing orientation, product diversification, price, and brand integrity.
Operating Income
In 2017, FedEx reported an operating income of $4.566B, $4.272B in 2018, and $4.466 in 2019, indicating that it has reported positive reports for the last three years.
Depreciation and amortization
Year 2017 = $2.955, 2018= $3.475B, 2019 = $3.353B
In all the years apart from 2018, FedEx reported a rise in operating income, depreciation and amortization, and revenue. This is an indication of the company’s growth.
From the analysis of the company’s income statements, it is evident that the company has consistently grown over the years.
Cash flows analysis
Over the past three years, FedEx has reported a positive operating cash flow. In 2019, the company reported a 1.83% yield. Compared to the market yield, this yield is below average as the market is risky and well-diversified
Underlying performance
Despite the company reporting positive revenue and its financial statement implying continuous growth, FedEx has performed below the analysts’ expectations. Given its size and the less intensive competitors, analysts have, over the years, expected the company to perform beyond its current performance. For instance, in 2018, the company dropped its annual revenue and profits. Analysts had expected that the company would increase its revenue by 25%, considering that it had already entered new markets, and its competitors were nothing compared to its size and investment. Gabriella, 2018 argues that FedEx holds a competitive due to its strategies that focus on the regular improvement of the quality of its services, thereby increasing its value in relation to society’s perception. Besides, the company improves the efficiency of its routine operations, saving on costs, and increasing its profit margins. On the contrary, FedEx faces stiff competition from local and start-up companies that are less capital-intensive and from which it stands out due to its global operations and reliable service.
3. Current Financial health
The company’s capital structure is partially founded on equity and partially on debt. Capital received from the company’s net profits and issuance of capital to its diverse shareholders. The debt capital is constituted of bonds, term loans, bonds, and other sources of credit over the three years, the debt level; inclusive of the long-term debts have been over $18B. A debt level, the company’s short-term investments, and cash ready for business use have been over $2.9B. Over the same period, the company has generated over $6.8B from its operations. The company’s debt ratio as of 2019 was 37 %. A 37% debt ratio indicates that the company was able to service its short-term loans.
The current ratio indicates the proportion of the current assets’ value in relation to a company’s current liabilities. In 2019, the company reported a 1.46 current ratio indicating that it was capable of servicing its debts.
Current ratio = Current Assets / Current liabilities/
= $14/9.3
= 1.46
A 1.46 current ratio in the Logistics industry is a good ratio as there is adequate cash
Debt-to-equity ratio
A 10.18 debt-to-equity ratio, indicates that FedEx is leveraged averagely. For large companies like FedEx, using equity as the main source of capital can be expensive to issue compared to debt as the interest payments from debt are tax-deductible. Debt-to-equity ratio Conventionally, large firms such as FedEx often incur reduced capital costs as they easily acquire financing, thereby holding more advantages overgrowing or small companies. Through their excess leverage, these companies can easily service their loans and are therefore considered efficient. Therefore, EBIT should efficiently cover the company’s net interests.
Shareholders equity
= $159.00B
Shareholder’s equity expresses the value of a company as an asset. Therefore, from FedEx’s shareholder’s equity, it is evident that its value has consistently grown over the three years, indicating that FedEx is a healthy business venture.
Does the organization have the right amount of cash and other resources?
FedEx has recently adopted a dynamic route optimization (DRO) technology (Wallstreet 2019). This technology provides its divers with real-time data on the most efficient routes to deliver packages. As a result, this may lead to punctual and efficient delivery services, strengthening FedEx’s position in the market compared to its competitors. Besides, the DRO technology may facilitate the delivery of increased packages volumes boosting the financial performance of the company.
With the logistics industry consistently growing in revenue, FedEx has been at the forefront of embracing global technological innovations in its routine operations. For instance, the company owns robotic members of staff in their New York, Falcon, and Lirico offices (FedEx 2020). Currently, the company is adopting a commercial delivery service facilitated by drone technology. Besides, the company has recently announced the investment in the courier robot technology to transport heavy loads for long distances. The company has also adopted a virtual assistant in its online platform to facilitate easy and effective service delivery.
With an employment strategy that prioritizes experience, reasonable remuneration, and a
training program on essential skills, FedEx develops highly productive personnel. An
integration of this work-force with high technology is more likely to facilitate increased business
growth in the future.
Over the years, FedEx has received various public honors as a reputable company in the logistics industry. In addition to its technological investment, this is more likely to elevate the business higher in terms of profits and revenue in the future. In case the company has more cash at hand, the company should reinvest the excess funds to further extend its profits and revenue.
The company is constantly increasing its packages drop off and collection retail stores. For example, early this year, the company added to its list 1,800 Dollar General stores retail locations to facilitate drop off and collection across over 14,000 retail stores in the United States (FedEx 2020). Besides, FedEx is constantly investing in its returns business, facilitating arrangements for packages returned to the original sender. Considering that the company currently has a low returns business market share compared to its peers, this could offer high growth potential Gabriella 2016). Also, recently the company has increased its freight services geographic coverage for larger items. This could elevate its performance and expand its position in the market.
Assess the financial value of the company using relevant indicators.
What is the business’s current market value?
Currently, FedEx has a market value of $158.59
FedEx price-to-earnings ratio
According to FedEx (2020), currently, the company has a TMS price to earnings ratio of $1.85. Due to its high market value, investors may be inclined to investing in the company perceiving that the community will consistently grow in the future. Increased demand for the company’s stock will, in return, increase the value of its shares, thereby boosting its growth. Besides, the price-to-earnings ratio implies the amount an investor can invest in the company to get a dollar of the earnings of the company. With a PE ratio of $1.85, the investors are more likely to invest in Amazon’s stock in expectations of making positive returns in the future, thereby promoting the financial growth of the company.
4.References
FedEx, 2020. The Future tech trends set to revolutionize logistics. FedEx. Accessed on 11 July 2020 from http://www.fedex.com/gb/enews/2018/february/logistics-tech-trends.html
FedEx, 2020. FedEx Corporations Annual Report 2019. FedEx. Accessed on 11 July 2020 from https://s1.q4cdn.com/714383399/files/doc_financials/annual/2019/FedEx-Corporation-2019-Annual-Report.pdf
Gabriella A, 2016. FedEx-The Next Big Challenge.Digital Initiative. Accessed on 11 July 11, 2020, from https://digital.hbs.edu/platform-rctom/submission/fedex-the-next-big-challenge/
Kakemueller, G., 2017. Assessing the Financial Health of a Company. Accounting Forum. 7(3) 123-146
Wallstreet, 2016. Why You Should Care About FedEx Corporation’s (NYSE: FDX) Cash Levels. Simply Wallstreet Accessed on 11 July 2020 From https://simplywall.st/stocks/us/transportation/nyse-fdx/fedex/news/why-you-should-care-about-fedex-corporations-nysefdx-cash-levels/.
4.Appendix
1. Depreciation and amortization
2.Operating Income
3.Revenue