FedEx Corporation financial analysis based on Form 10-K

FedEx Corporation Complete Exercise

• What is FedEx's strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operations excellence, or product leadership customer value proposition? What evidence supports your conclusion?

FedEx relies on a product leadership approach for their success. The company commands four different market businesses, but has focused on keeping the businesses seamless and working together. According to their report, "We believe that sales and marketing activities, as well as the information systems that support the extensive automation of our package delivery services, are functions that are best coordinated across operating companies. Through the use of advanced information systems that connect the FedEx companies, we make it convenient for customers to use the full range of FedEx services. We believe that seamless information integration is critical to obtain business synergies from multiple operating units."

• What are FedEx's four main business segments? Provide two examples of traceable fixed costs for each of FedEx's four business segments. Provide two examples of common costs that are not traceable to the four business segments.

The first line of business is FedEx Express. Two traceable costs for this line of business would be the cost of airplanes for international deliveries and the salary of pilots. The second line of business is FedEx Ground. Two traceable costs through FedEx Ground would be the cost of trucks and the salary of drivers. The third line of business is FedEx Freight. Two traceable costs to this segment include the cost of freight space and the cost of package insurance on the freight train. The fourth line of business is FedEx Kinko's. Two traceable costs through FedEx Kinko's would be the cost of building space and the cost of copy machines. Two common costs within the company are costs of packaging material and the salaries of the FedEx executive board.

• Identify one example of a cost center, a profit center, and an investment center for FedEx.

A cost center for FedEx is their customer service centers. An investment center for FedEx is FedEx Kinko's Copy Department. A profit center for FedEx is FedEx ground.

• Provide three examples of fixed costs that can be traceable or common depending on how FedEx defines its business segments.

One fixed cost for FedEx is the property tax due on all the business centers and delivery centers. Another is the company's rents for the delivery centers. Finally, the cost of insurance for the company.

• Compute the margin, turnover, and return on investment (ROI) in 2005 for each of FedEx's four business segments (Hint: page 99 reports total segment assets for each business segment.)

For FedEx Express, the margin is $1,414 million, the return is $789 million, and the ROI is $11,188 million. For FedEx Ground, the margin is $604 million, the return is $494 million, and the ROI is $1,846 million. For FedEx Freight, the margin is $354 million, the return is $193 million, and the ROI is $1,825 million. For Kinko's, that data is not available, as Kinko's was not yet owned by FedEx.

• Assume that FedEx established a minimum required rate of return of 15% for each of its business segments. Compute the residual income earned in 2005 in each of FedEx's four segments.

For FedEx Express, the residual income would be $1,201.90 million. For FedEx Ground, it would be $513.40 million. For FedEx Freight, it would be $390 million. For FedEx Kinko's, it would be $85 million.