Fedex Financial Analysis

FedEx Financial Analysis

FedEx is an American multinational courier delivery service company which was founded in 1971. There are now more than 400,000 FedEx team members and its air, ground and sea networks cover more than 220 countries and territories, linking more than 99 percent of the world’s GDP.

From the financial statement of FedEx from 2011 to 2017, the growing revenue catches our eyes at first glance and from the balance sheet we figure out that FedEx’s asset has reached 48,552 million dollars in 2017. We conduct both qualitative analysis and trend and ratio analysis on FedEx’s financial statement to analyze the efficiency, liquidity, profitability and solvency of it and there are some observations:

The absolute value of revenue continued to grow, indicating a bullish performance of FedEx. The debt-to-equity ratio had a sudden increase in 2015-2016 from 0.48 to 1.00, which means that the firm is absorbing more debt. In the balance sheet, during the same period, the cost of treasury stocks also increases about $2,500 million, which suggests a possibility that the firm financed to repurchase issued shares. Along with falling interest coverage ratio, this high debt-equity ratio typically shows that FedEx is aggressive in financing its growth and there may be a greater potential for financial distress in the short term. Searching the official website of FedEx, we find that there were several special events happened in 2015 which could to some extent explain our observation: the change of accounting method, several major acquisitions and the change of pension plan.

From the balance sheet, we find that the account receivable, prepaid expenses, other assets, accrued payable and accrued expenses all have substantial increase from 2015 to 2016. FedEx’s current ratio, quick ratio and cash ratio deteriorate from 2015 to 2016, but then slightly improves from 2016 to 2017, which might cause by the major acquisitions. As for the income statement, we see that the retirement plans Mark-to-Market Adjustment fluctuated in the past few years and sharply increased from 2015. Since we know the pension plan was changed in 2015, the decrease of net profit margin in the fiscal year 2015 and 2016 can be explained for the sake of giving more benefits for its employees.

Red Flag Analysis:

After acquiring ratios from Balance Sheet and Income Statement, we conduct a red flag analysis and there are some areas deserving a dive into more information:

1. The increase of “other expense” year by year: we should figure out the driver that causes the increasement.

2. The cash flows are not steady, especially in the year 2014 and 2016, the ending period cash and cash equivalents are less than the beginning period, indicating that FedEx’s cash management is not sufficient enough. We should check whether it is related to the change of pension plan or some other unusual events.