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If it is felt that this is not the case, then another question needs to be answered -- to what extent are the policies and strategies of FedEx management related to the company's performance. Although it has long been held that the company is an economic bellwether on account of their customer base, there are certain aspects of the firm's business model that contribute to their performance, in particular vs. The performance of other firms in the industry.
There are other critical questions as well. The relation of FedEx's performance to the health macroeconomic environment has long been considered to be strongly correlated. It is hypothesized that this correlation has diminished in recent years. The company has expanded its business offerings, which should serve to increase that correlation by allowing the company to appeal to a broader range of business customers. However, these changes have been driven by increased segmentation within the shipping industry. This segmentation has been driven by inflation driven by higher fuel prices, and by the need for competitors to break the tight grip that FedEx and UPS have traditionally had on the courier business by adopting different business models. The impact of these changes should be that successful performance in the industry going forward will depend less on the state of the overall economy but on the ability of management to adapt to the changing environment. This study therefore asks the question of the degree to which FedEx's performance in recent years has been a function of management or a function of the economy. The answer will give us clues as to how well the company has adapted and to how well the company can be expected to perform in the next few years.
We hypothesize that FedEx Corporation's recent performance is mostly a reflection of the current economic circumstances, but that the firm's lack of industry leadership on many key metrics reflects weaknesses in their business model. These weaknesses likely stem from a dependence on the overnight business and thus on the price of jet fuel. It is expected that the future direction of the company, should it continue to be so dependent on these variables, will be weak. Management therefore will need to take an active leadership role in steering the company towards more diversified revenue streams, more sustainable businesses and more growth segments.
Financial statement analysis, both in terms of statistics and accounting strategy, is a critical tool for understanding a firm's operations. Financial statements always contain a variety of distortions, the result of accounting policy, some of which the firm's management has control over and some of which it does not. By deconstructing the statements, it is possible to determine the reality of the company's operations. This reality can then be used to help gain an understanding about the company's future direction.
FedEx has long had its performance tied to the broader economy. Yet, the company's business is under pressure from macroeconomic shifts. This represents a significant test for the company's leadership, most of whom have significant tenure with the company. Leadership is an important issue for the future of FedEx because the firm has only ever had one CEO, founder Fred Smith. The ability of the company to manage its unique challenges can be effectively analyzed by its ability to manage these challenges over the past couple of years.
The steps taken in the financial analysis will lead us to undo the accounting distortions, which in turn will allow us to determine the company's fitness going forward. It is believed that the company's strong business model has brought it to a position of industry dominance but that there are weaknesses either in the model or in its execution that have lead it to lack industry leadership in many key financial metrics. It is hoped that this dissertation will allow us to better understand what those weaknesses are and whether the company is capable of addressing them.
FedEx 2008 Annual Report. Retrieved July 8, 2009 from http://files.shareholder.com/downloads/FDX/677397546x0x223284/b51e2e11-6edc-44a3-bcad-e5379c70a765/FedEx08ar.pdf
Palepu, Krishna G. (no date) Business Analysis & Valuation: Using Financial Statements. Cengage Learning. Chapter 3.[continue]
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