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Executive Summary FedEx is one of the fastest growing companies in America and in the world. It is recognized as one of the largest airlines in the world mostly consumed with shipping freight rather than people. FedEx makes a business out of many different markets and concepts. They work with IT, business solutions, and even e-commerce so it is well documented that FedEx is a broad company trying to reach every consumer. Right now FedEx is focusing on small market strategies with its new concept FedEx Kinko’s. It is what will help the company generate the revenue to relieve them of their debt to loans and liabilities of pensions and increasing gas prices and ever pressing airline regulations changing monthly. FedEx 2005 Annual Report
Part A. Introduction • Frederick W. Smith. • FedEx headquarters is located in Memphis, Tennessee. • The ending fiscal year is may 31, 2005. • FedEx is composed of a large transportation service. It also incorporates e-commerce and business services as well with other separate business under its belt but actively working towards the same goal such as: FedEx Kinko’s, FedEx ground, custom critical, FedEx trade networks, FedEx freight, and FedEx supply chain services. • FedEx has been integrating itself around the world in order to provide its services to anyone who desires them.
Part A. Audit Report • Ernst & young LLP, independent registered publicaccounting firm. • I found the statements by Ernst and young LLP, to be extremely vague and perhaps misleading, “in our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of FedEx corporation at may 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended may 31, 2005, in conformity with U.S. Generally accepted accounting principles.” It includes years not associated with the most recent annual report and does not even explain the basis behind its unclear and befuddling opinion.
Part A. Stock Market InformationHttp://finance.Yahoo.Com/q?S=FDX • The most recent price of a single FedEx share is $110.43. • 52 – week range $76.81 — $110.57. • Dividend per share is $0.07 - $0.08 • Date of information: may 31, 2005. • FedEx stock right now is at $110 per share. To invest around $10,000 would get you approximately 90 shares of FedEx stock. Years ago when FedEx stock was around $40 - $60 it would have made a large impact on the investor if he/she were to hold and then sell at this time period making it more worthwhile for the profit. FDX stock is still on an increase. There is no accurate forecast of its projected path but a steady increase is what will be expected for the next few months. The best advice would be to hold until it begins dropping over a certain amount per day and does not recover. Then one should sell.
Part B. Industry Situation and Company Plans The industry for Air & Freight Services has been expanding with the variety of carriers that have been popping up recently. DHL has been slowly growing into a more popular route for shipping packages across the continent and the globe. As well as TNT. The USPS has also been trying to reestablish its name and logo to promote a more efficient parcel service, FedEx has been offering different options for a small business with its most recent project FedEx Kinko’s. So the outlook on FedEx’s ability to continuing growing is significantly promising and their ability to stay on the same path and continue profiting and providing excellent service to its costumers proves that its business strategy, originally 30 years old, has been able to stand the test of time. As for other couriers FedEx’s future looks very promising. - "We exceeded our original forecast for the second quarter due to outstanding operational performance and the deferral of certain advertising and promotional expenses to the second half of the fiscal year," said Alan B. Graf, Jr., executive vice president and chief financial officer. "Our increased earnings guidance for the full year reflects confidence in our ability to continue executing our business strategy, manage our cost structure and leverage sustained economic growth." FedEx is depending on the development of its e-commerce based operations to help open more doors for reaching more consumers. Many new applications are being developed for its customer support and freight services. Growth StrategiesFedEx plans to focus on these five strategies to grow as a business. Grow core package business Grow internationally Grow our supply chain capabilities Grow through e-commerce & technology Grow through new services & alliances
Part C. Income Statement FedEx uses a single-step income statement format. FedEx Corp. reported the following consolidated results for the second quarter of 2005: Revenue of $8.09 billion, up 10% from $7.33 billion the previous year Operating income of $790 million, up 32% from $600 million a year ago Operating margin of 9.8%, up from last year's 8.2% Net income of $471 million, up 33% from $354 million the previous year FedEx is growing at an exponential rate. Increasing by almost 20% since last year in Gross Profit. Almost doubling in Net Income. Their strategy is proving excellence and promoting confidence in its stockholders.
Part C. Balance Sheet The balance sheet accounts from the FedEx fiscal year of 2005 report growth in some areas. The decreases in the balance sheet accounts, which is something I realized was possible when I worked for FedEx, were the conditions of equipment used to handle packages. Because FedEx is so large and cannot keep up with all of its maintenance the damage may result in a loss of assets by FedEx when they must dispose of equipment and wait until they can acquire more equipment. The account that has made the most significant movement has been the Retained Earnings account.
Part C. Statement of Cash Flows • FedEx Cash Flows have not been topped by Net Income for at least the last 3 years. • FedEx is using FedEx Kinko’s as a main pipeline for revenue (due to its heightened popularity as a easy way to transport packages in the suburban community) to build the company into a vast and intimidating freight competitor. • Their e-commerce is also making profits to help aid the payoff of FedEx loans and establish wealth throughout the company.
Part D. Accounting Policies Critical Accounting Policies: Pension Cost “The determination of our annual pension cost is highly sensitive to changes in these estimates because we have a large active workforce.” Self-Insurance Accruals “We are self-insured up to certain limits for costs associated with workers’ compensation claims, vehicle accidents and general business liabilities, and benefits paid under employee healthcare and long-term disability programs. At May 31, 2005 there were approximately $1.1 billion of self-insurance accruals reflected in our balance sheet ($1.03 billion at May 31, 2004). At May 31, 2004 and 2003, approximately 43% of these accruals are classified as current liabilities.” Long-Lived Assets Property and Plant: “Our key businesses are capital intensive with more than 45% of our total assets invested in our transportation and information systems infrastructures.” Leases: “We utilize operating leases to finance certain of our aircraft and facilities.” Goodwill: “We have approximately $2.8 billion of goodwill on our balance sheet resulting from the acquisition of businesses, which includes approximately $1.7 billion from our acquisition of FedEx Kinko’s in 2004. Accounting standards require that we do not amortize goodwill but review it for impairment on at least an annual basis.” Revenue Recognition “We believe the policies adopted to recognize revenue are critical because an understanding of the accounting applied in this area is fundamental to assessing our overall financial performance and because revenue and revenue growth are key measures of financial performance in the marketplace. Our businesses are primarily involved in the direct pickup and delivery of commercial package and freight shipments, as well as providing document solutions and business services.” FedEx
Part D. Accounting Policies continued. • Fiscal years • Principles of consolidation • Re classifications • Credit risk • Revenue recognition • Advertising • Cash equivalents • Spare parts, supplies and fuel • Property and equipment • Capitalized interest • Impairment of long-lived assets • Pension and postretirement healthcare plans • Goodwill • Intangible assets • Income taxes • Self-insurance accruals • Deferred lease obligations • Deferred gains • Employees under collective bargaining arrangements • Airline stabilization act charge • Stock compensation
Part E. Financial AnalysisLiquidity Ratios • Working Capital = $9,588 • Current Ratio = 1.10 • Receivable turnover = 9.10 • Average days’ sales uncollected = 40.11 • Inventory turnover = 54.20 • Average days’ inventory on hand = 6.73
Part E. Financial AnalysisProfitability Ratios • Profit margin • Asset turnover • Return on assets • Return on equity It can be said correctly that FedEx has been profiting substantially just by comparing this past fiscal year and the previous year. The company is showing great strength and ability to grow into a massive freight empire.
Part E. Financial AnalysisSolvency Ratio • Debt to equity: .25 was reported for the fiscal year of 2005. For the year of 2004 it was reported around .35. FedEx is slowly paying off its loans that originally started the company 30+ years ago. By finally taking care of its long term liabilities FedEx will have the ability to conquer the industry with almost infinitesimal responsibility towards liability.
Part E. Financial AnalysisMarket Strength Ratios • Price/earnings per share = $4.81 for FY 2005 $2.80 for FY 2004 • Dividend yield = 0.3215% for FY 2005 0.3102% for FY 2004 You can infer just from these numbers that FedEx is increasing the value of its shares by increasing Its businesses and broadening its layout in the industry by expanding on concepts like FedEx Kinko’s which is the company’s biggest money maker as of right now.