Federal Express Corporation FedEx

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Federal Express Corporation (FedEx)

Introduction

Fed Ex is an American multinational corporation that is based in Memphis, Tennessee.

The entity is a delivery service company that is mostly known for its overnight shipping service.

Also, the company is known as the leading delivery among its peers due to the ability to track the

packages and provide real-time updates on the location of the packages to keep the customers

apprised of their shipments. However, this feature has been applied by many other courier

services. The industry has attracted new players from all around the globe, and this has increased

the competition within the industry. For such concerns, it is imperative to conduct an analysis of

the company by looking at the financial reports to ascertain the financial position foreign direct

investment and the capital structure of the firm. Additionally, the report will look at the persons

responsible for the international finance activities and the global investment strategies adopted

by the corporation.

Background Information

Federal Express established its operation in 1973 with its operations restricted to cities in

the US. During this period, it employed 389 employees and delivered 186 packages to 25 cities

in the US on the first night of continuous operations. In the same fashion, the corporation

reached $1 billion in revenue in 1983 and was the first company in the US history to arrive at

this value without a merger or acquisition (FedEx, n.p). In 1985, the company expanded its

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operations in Europe and regularly scheduled flights that would deliver the packages. Likewise,

the entity also established operations in Dubai in 1989 and later purchased Flying Tigers to

expand their international operations. FedEx is currently a multinational corporation serving the

Middle East, Europe, America, Asia, and Africa. The company serves hundreds of cities and

markets with its intercontinental and international express services. FedEx Express is the market

leader in express distribution providing reliable, time-definite, and rapid delivery to over 220

nations and territories. The company connects markets that constitute 90% of the global gross

domestic product within one to three business days (FedEx, n.p).

FedEx capitalizes on its transportation infrastructure and unmatched air route authority

combined with the world-class information technology. The entity provides over 3.6 million

shipments each business day, thus indicating the profitability of the corporation. The company

also engages in many activities outside its official tasks. The entity aims at providing global

connections while minimizing the environmental impact. The Corporation has integrated

environmental practices into its daily operations and has plans to work towards fulfilling these

objectives to increase its efficiency (FedEx, n.p). Moreover, the company seeks to provide

quality services and interact with the consumers to increase user satisfaction. FedEx has been

recognized globally due to the excellent customer interaction and employee relations, strategy,

and motivation. The policies and procedures used by the FedEx support a strong employee

culture that seeks to provide a safe, diverse and rewarding environment. Furthermore, each

region is independent and thus can tailor its policies to fit the surrounding community.

Additionally, the company supports sports activities on a global scale. The company is the

official carrier of the ATP World Tour and UEFA Europa League (FedEx, n.p).

Responsibility of the International Financial Activities

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The financial report presented by FedEx Corporation consists of all the statements from

every branch and subsidiary around the globe. The corporation uses strict accounting policies,

practices, and transactions. The FedEx services segment provides sales, information technology,

marketing, communication and back-office support to the transport sector. The financial section

of the corporation consists of the financial reporting, operations, and financial condition. The

company uses the current reporting and financial systems to ensure financial responsibilities of

all the transactions (FedEx 10-13). The information system utilized by the company is up-to-date

and records all the transactions from all the branches as well as the payments received. Each

subsidiary has the responsibility of reporting its financial activities to the parent companies and

indicating all the expenses incurred. The expenses are in the form of rental fees, utilities, and

payments made to the employees. The additional revenue is transferred to the parent company

and is compiled to produce the financial statements. Each subsidiary has the responsibility of

preparing its financial statements to indicate all the expenses and revenues to ease the

compilation task of the parent company. The manager of the branch and subsidiary is responsible

for the preparation of the financial statements and reporting of the books of records (FedEx 12-

19).

Financial Analysis of FedEx

Different financial instruments can be considered to determine the capital structure of a

company. Typically, the optimal capital structure can be regarded as the best debt-to-equity ratio

for a corporation that will maximize its value. The optimum capital structure should minimize

the capital costs and offer a balance between the ideal debt-to-equity range. The capital structure

of FedEx will consider the debt-to-equity ratio as well as the financial leverage of the firm. The

table below will indicate the capitalization ratios and the leverage ratios.

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2014

2015

2016

Debt-Equity Ratio

0.31

0.48

1.00

Financial Leverage

(Debt ratio)

0.54

0.60

0.70

The debt-equity ratio is a crucial indicator of the financial leverage of the firm and can be

calculated by dividing the total liabilities of a company by the stockholders' equity. The debt-

equity ratio for FedEx Corporation increased steadily from 0.31 in 2014 to 0.48 in 2015, and

finally to 1.00 in 2016. The ratio shows the amount of debt that a company is using to finance its

assets concerning the value of the shareholder's equity. This ratio is important and can be used

to gauge how much debt the company is taking in each financial year. This above data suggests

that the firm has been increasing its reliance on debt to expand its operations. This can signal

either a positive or adverse effect on the firm and investors. Taking up debts can increase the

activities of a company which will eventually translate to the generation of more earnings. The

additional earnings generated could not have been achieved without the additional financing,

thus making it good for the business. If the increase in the earnings is greater than the cost o the

debt, then the shareholders will benefit from the extra revenue. However, the cost o the debt can

end up overweighting the returns that the company will generate from the debt through the

investment and business activities. The debt-equity ratio for the subsidiaries is hard to calculate

since the subsidiaries do not release their independent financial statements. The parent company

publishes the combined financial statements for all its affiliates across the globe, thus making the

comparison of the capital structure challenging.

The financial leverage ratio looks at how much money comes from loans and evaluates

the ability of FedEx to meet the financial obligations. The table above indicates that the financial

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leverage increased from 0.54 in 2014 to 0.60 in 2015, and finally to 0.70 in 2016. Too much

leverage can be dangerous to an investor and a company in general. The above results indicate

that the firm has been increasing its borrowing in the past three years, with 2016 having the

biggest value. Uncontrolled debts for a company can be dangerous and can result in credit

downgrades, or worse. However, a very low leverage ratio can also raise important questions for

the enterprise. It can reflect an inability to borrow, thus showing that the operating margins are

too tight. However, a company can increase its debts to get higher productivity and returns, but

this should be investigated to ensure that benefits derived are greater than the maintenance fees

for the loans.

The debt ratio can be utilized as a solvency ratio to measure the total liabilities of the

corporation as the percentage of the total assets. This ratio shows the ability of an organization to

repay its obligations from the assets. The companies with higher levels of the liability than its

assets are considered as highly leveraged. In this case, the company has been increasing its

financial leverage with time. A lower ratio indicates a corporation that is stable since it can repay

its debts quickly. A debt of 0.5 or less is considered as less risky, and thus the industry

benchmark is set at this value. The above data suggests that the financial leverage for the firm

has been higher than the recommended reference, thus reflecting an unstable condition. The

highest debt ratio for FedEx was 0.70 in 2016, thus suggesting that the company's liabilities are

70% of its total assets. As such, the creditors own 70% of the organization's assets while the

shareholders own 30%. This ratio shows that the operations of the firm are at risk, and the

organization should reduce its reliance on debts and lessen the ratio to the recommended value

(0.50% or less). This will eventually reduce the leverage ratio, and will also increase the

confidence of investors and creditors in the operations of the entity.

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Foreign Direct Investments (FDI)

FDI can be considered as an investment made by the company through expanding into a

foreign market in the form of establishing operations in another country or acquiring assets.

However, it is important to note the difference between FDI and portfolio investment whereby an

investor merely purchases equities of foreign-based companies. The distinct feature of foreign

direct investment is that the parent company establishes either effective control or substantial

influence over the decision making of the foreign entity. The approach utilized by FedEx

Corporation is through FDI to the international markets. The company has opened subsidiaries in

over 200 countries which are indirectly controlled by the parent company. Each subsidiary has

its unique management structure and policies, but the entities work under the umbrella of the

parent company. The financial reporting techniques applied by each company are the same, but

the internal systems may be tailor-made to suit the culture of the surrounding community.

The staff employed by the entity is diverse, and each subsidiary operates staff in that

particular territory. However, the biggest obstacle to the approach adopted by FedEx is the

economic uncertainty and sluggish growth in the internal economy. However, FedEx continues

to expand its international footprint to improve its growth. This approach has grown the total

revenues of the firm significantly across the globe. 95% of consumers live outside the US, thus

showing the significance of FedEx's game plan. The strategy applied by FedEx has contributed

immensely to its growth across the international markets. FedEx provides support to all its

subsidiaries and closely monitors the financial reports presented by the managers of each

subsidiary. Moreover, the information technology implemented by the entity allows the firm to

track all the incomes from the shipments made by each subsidiary, thus improving its control and

decision-making process. The company also provides crucial resources, expertise, and online

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tools in the local languages to the regional companies. Consequently, this improves their

competitiveness and performance in the global arena. This approach has accelerated FedEx’s

package volume in the foreign markets, thus contributing to the income growth.

FedEx has also capitalized on the growing international trade. The company has

identified Europe as a major market and has increased its investment to increase the number of

branches. Moreover, the FDI strategy also involves the introduction of the SenseAware service

in the European nations. Initially, this service was only available in the US and Canada, and its

expansion has contributed to the success of the corporation (Basu n.p). The SenseAware applies

a multi-sensor gadget to allow the customers to track their packages during shipment. The

service has been popular in the US, and the competitors of FedEx are increasing their use of the

SenseAware, thus leading to its introduction in the European market. The company also

expanded its investment in the Asian and African markets as a result of the slow economic

growth in the developed nations. The emerging markets are now the hunting grounds for the

Western Multinational Corporations, and FedEx has capitalized on its market reach to create a

reliable brand in Asia and Africa (Basu).

China is a huge courier market with over 20 million packages being sent daily. However,

the market has also attracted other major players, exceeding 7,500 companies. Also, there are big

local players in China's market such as ZTO Express and SF Express. FedEx is looking to

capitalize on the growing logistics market. The aging population in the country has increased the

demand for pharmaceutical and medical products (Basu). For instance, the National Bureau of

Statistics of China indicated that more than 202 million people, nearly 15% of the population

was above the age of 60 years in 2013. FedEx has expanded its FDI to capitalize on this

opportunity by developing the healthcare logistics capabilities at its Shanghai international hub.

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FedEx reserved its new Boeing 777 aircraft primarily for commuting between China and the US

since the healthcare customers often demand speedy services and late pickups (Basu).

International Finance Strategies

The company adopts various strategies to increase its efficiency, especially in the

management of the financial instruments of the enterprise. The company has the goal of

improving its profitability and securing the long-term viability of the business. To achieve this

aim, the company primarily focuses on areas of experience and the part of the business with the

biggest growth potential. The company seeks to increase its profitability in the years to come by

looking for opportunities in the emerging markets (FedEx, n.p). The company is also

implementing several initiatives that are meant to improve the efficiency of the staff and work

processes. This is intended to reduce the time and resources required as well as prioritizing the

crucial activities and eliminate functions that have become redundant as a result of the

operational or market-driven changes, and the technological milestone (FedEx). Consequently,

this approach will achieve greater efficiency and reduce the operational expenses, thus increasing

the financial effectiveness of the parent company. The company is also modernizing its air fleet

by replacing the older aircraft with modern planes. The 757 and 767 programs were introduced

to bring modern airplanes so as to save on costs. The trip costs will improve by 20% for the

B757 in comparison to the A310-200 and up to 30% for the B767 compared to the MD10-30.

This will make the trips cost-effective and fuel-efficient, thus improving the financial status of

the company (FedEx).

FedEx is conducting a major transformation of its US network through implementing

new technology to improve crew and flight scheduling. Also, the entity is seeking to refine the

aircraft maintenance processes and consolidate the stations and facilities. Also, the entity also

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aims to implement change meant to improve the fuel efficiency of the aircrafts and vehicles, thus

allowing the corporation to save on costs (FedEx). Equally important, the entity is diversifying

its business operations to capture growth from all the parts of the international cargo market.

Moreover, the company is also seeking to utilize the available cargo space on the passenger

planes for the global shipments on certain routes. Additionally, the company is looking to

continue with its growth strategy to retain a majority of the annual rate increases. The company

provides excellent services to leverage opportunities and increase consumer retention (FedEx).

Conclusion

In conclusion, FedEx has grown significantly over the past 40 years as a result of the

managerial strategies that have been adopted by the corporation. The company commenced its

operations in the US market and had gradually expanded over the years to more than 220 states

across the globe. The growth can be attributed to the excellent services offered by the firm as

well as its size. The company delivers packages within three business days, thus attracting a huge

market. In addition to the quick package delivery, the company ensures sustainability by making

sure that the policies and methods implemented cause minimal damage to the environment.

FedEx also supports a healthy employee culture seeks to provide the safe, diverse and rewarding

environment.

The capital structure of the firm can be described by looking at the financial leverage and

the debt-to-income ratio. The data suggests that the debt-to-income ratio for FedEx Corporation

has been increasing gradually over the years. The increasing ratio can have either have a negative

or positive effect. The increase in the debt-to-income ratio can suggest an increasing in

borrowing. As such, the firm will have extra funds to improve the provision of services, thus

improving the revenue of the firm. However, the increased earnings should be greater than the

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interest accrued from the loans; otherwise, this will reduce the future profitability of the

enterprise. Also, the financial leverage ratio records a similar trend. The ratio indicates that the

creditors own 70% of the organization's assets while the shareholders own 30%. The operations

of the firm are at risk, and thus the entity should implement strategies meant to reduce the

leverage of the corporation. The company achieves its FDI objectives by looking at new markets

to invest in which have a tremendous growth potential. Additionally, several strategies are being

adopted by the firm such as using modern technology and restructuring the operations of the

enterprise, thus reducing the operational costs and attaining efficiency.

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Works Cited

Basu, Eshna. FedEx Corporation's Playbook Reveals Some Startling International Plans, 2014,

https://www.fool.com/investing/general/2014/07/11/fedex-corporations-playbook-

reveals-some-startling.aspx. Accessed 17 April 2017.

FedEx. Financial Highlight, 2015,

https://s1.q4cdn.com/714383399/files/oar/2015/docs/FedEx_2015_Annual_Report_Finan

cials.pdf. Accessed 17 April 2017.

FedEx. About FedEx, 2017, http://www.fedex.com/in/about/. Accessed 17 April 2017.

FedEx. Company Profile, 2017, http://www.fedex.com/in/about/company-info/. Accessed 17

April 2017.

FedEx. FedEx Express Strategy, 2017, http://investors.fedex.com/company-overview/fedex-

express/strategy/default.aspx. Accessed 17 April 2017.

Morningstar. FedEx Corp FDX, 2017, http://financials.morningstar.com/balance-

sheet/bs.html?t=FDX&region=usa&culture=en-US. Accessed 17 April 2017.

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