JWI 530 Strayer University FedEx Balance Sheet Discussion please response to the 2 peers: Peer # 1 VALENTINE ANEKE RE: Week 2 Discussion COLLAPSE

JWI 530 Strayer University FedEx Balance Sheet Discussion please response to the 2 peers:

Peer # 1

VALENTINE ANEKE

RE: Week 2 Discussion

COLLAPSE

FedEx Company Brief

FedEx Corp. is a holding company, which engages in the provision of a portfolio of transportation, e-commerce, and business services. It operates through the following segments: FedEx Express, FedEx Ground, FedEx Freight, FedEx Services, and Corporate, Other, and Eliminations. The FedEx Express segment consists of domestic and international shipping services for delivery of packages and freight. The FedEx Ground segment focuses on small-package ground delivery services. The FedEx Freight segment offers less-than-truckload freight services across all lengths of haul.

The FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions. The Corporate, Other, and Eliminations segment includes corporate headquarters costs for executive officers and certain legal and finance functions, as well as certain other costs and credits not attributed to the company’s core business. The company was founded by Frederick Wallace Smith on June 18, 1971 and is headquartered in Memphis, TN.

(WSJ)

FedEx

(In Millions)

2019

2018

PROPERTY AND EQUIPMENT, AT COST

59,511

55,121

For reference, my abbreviation on the summary on figures will be in millions, unless stated otherwise.

Further to my Analysis, Horizontally, Fixed assets (Which include property, plant, Equipment) as of 2018 was $55,121 and $59,511 in 2019. FedEx model within the logistics domain invested $4,000 in 2019 to improve its Airline Fleet, Vehicles, Package handling, IT, and less on Facilities. Which is an integral part of the service delivery. This with other parts of the balance sheet (Depreciation) will form their Net Fixed Asset (Fixed Assets-Accumulated Depreciation). This area, especially a company into supply chain holds the bulk of the spending, and could carry close to 50-80%, all in effort to improve service delivery, another question will be its efficiency.

My inquisitive moment, I went a little further to get the Return on assets, ROA, based on current data sits at 2.01 (WSJ), This Shows company profits as a percentage of fixed assets and working capital.(Accountingtools.com). This figure is low compared to UPS at 8.01 (WSJ).

Not clear how their depreciation is being calculated/Modelled, as some companies have an accelerated deprecation method. The Less accumulated depreciation and amortization $29,082 and $26,967 for 2019 and 2018 respectively, clearly shows a chunk of is Fixed Assets. It may be a sign the company is facing potential heavy expenditure in the near future to replace the assets (Siciliano,2015), currently at close to 50%. To improve these numbers, will be to keep up maintenance programs on equipment with long service lives to avoid unnecessary shortening of their usefulness (Siciliano, 2015). As these form an integral part of their service delivery.

References

Gene Siciliano.2015. Finance for Nonfinancial Managers
Accounting Tools (https://www.accountingtools.com/articles/2017/5/14/financial-statement-analysis?rq=financial%20statement%20analysis)
Wall Street Journal (https://www.wsj.com/market-data/quotes/FDX/financials)
Wall Street Journal (https://www.wsj.com/market-data/quotes/UPS/financials/annual/balance-sheet)

SnapShot-FedEx.jpg (72.902 KB)

Peer # 2

Ewelike Alaekwe

RE: Week 2 Discussion

COLLAPSE

Hi Everyone,

For this week’s DQ post, I have chosen Target (TGT), one of the largest retail corporations in the US and a component of the S&P 500 index (1). Please see below a snapshot of Target’s 2019 Fiscal Year Consolidated Statement of Financial Position as of February 1, 2020 (2).

And I will be looking at the Long-Term Debt line item. On Target’s balance sheet above it is recorded as Long-Term Debt and Other Borrowings.

Long-Term Debt is any loan to a company to be repaid more than 12months after the date of the balance sheet (3). It measures all the debt of the company that is not due in the current fiscal year. The management must understand their long-term debt, and it’s evolution as it is a critical component of business solvency ratios. These ratios are used by analysts, investors and credit rating agencies to assess the business solvency risk (4). For example, if the long-term debt is on the rise and the business becomes excessively leveraged, it may affect the credit rating of the business and makes it more difficult and expensive for them to borrow money. More so, companies with huge long-debt will be more vulnerable during economic crises, especially if a significant part of the debt matures at the time of the crises.

The table below highlights the long-term debt and other borrowings for Target for FY 2019 and 2018.

Target

(In Millions)

2019

2018

Long-Term Debt and Other Borrowings

$11,338

$10,223

From the table above, Target’s Long-Term Debt increased by $1.115 billion from FY 2018 to FY 2019, this represents about 11% increase.

Looking at long-term debt alone does not tell us if its increase is bad or good; it has to be compared with other line items such as equity, cash flow, earnings etc. That said, in general, the increase in long-term debt for Target is not good because an increase in debt means an increase in financial risk if other factors remain constant.

A closer look at the statement will reveal that a large portion (about $1.052 billion) of the long-term debt was due in FY 2018. It seems to me that the increase in long-term debt from 2018 to 2019 was because Target refinanced (or just reborrowed) that portion of their long-term that was due in FY 2018. There is a need to read the notes or look at the other statements to confirm my thoughts.

The increase in long-term debt implies that Target has more capital to run or expand its operation without diluting the shareholder’s equity and if properly managed, they can take advantage of leverage to increase ROI (5). Nevertheless, more debt puts Target in a more risky situation as all their financial risk ratios, if other factors remain constant, will be negatively impacted and also may affect Target’s credit rating.

To improve its long-term debt standing, Target has to ensure that the debt is properly utilised to improve the companies bottomline and cash flow and have enough cash and cash equivalents to covers the debt interest and current portion of the debt as it matures.

References

Google Search. Target (TGT) Corporation.
Target 2019 Annual Report. Item 8 – Financial Statements and Supplementary Data. Retrieved on July 15, 2020, from https://investors.target.com/annual-reports
Thomas R. Ittelson. 2020. Financial Statements. Career Press. 3rd Edition. Kindle pg. 675.
https://www.investopedia.com/terms/l/longtermdebt.asp
https://www.investopedia.com/terms/l/leverage.asp