This paper is about FedEx and UPS, and their respective financial statements. Some of the subjects contained are the free cash flow of these respective companies, the return on assets, the net profit margin, the asset utilization rate and there is also a bit about where to find basic information about FedEx.
Financial Reports
The company that I have selected is FedEx. The homepage of FedEx is located at:
http://www.FedEx.com/us/
There are other sources of information about the company as well. Its financials and stock information are available at MSN Moneycentral, at the following address: http://investing.money.msn.com/investments/stock-income-statement/?symbol=FDX
There are also numerous media sources for information about the company as well. These include Forbes and other business media. For example the following page notes that FedEx is one of the world's most valuable brands: http://www.forbes.com/companies/FedEx/
FedEx
UPS
Return on Assets
Net Profit Margin
Asset Utilization Rate
On these three measures, FedEx outperforms UPS on two of the measures. The company returns a better return on assets, and its net profit margin is higher. However, UPS has a better asset utilization rate. This is in part because UPS has a smaller proportion of fixed assets on its balance sheet, compared with FedEx, and UPS also has more revenue. However, FedEx is the more profitable company of the two, and that gives it a better margin and a better return on its total assets.
Overall, FedEx has a strong financial position. When looking at the different financial variables, it is clear that FedEx is generally a strong company. FedEx has good liquidity, and does not have too much debt on its books. The total debt to equity for FedEx is 92.9%, which means that there is more equity than debt -- FedEx has only a moderate degree of leverage. This has to be considered quite healthy, given the amount of fixed assets that FedEx has, in facilities and aircraft in particular.
The free cash flow is defined as the operating cash flow less the capital expenditures. These are figures that come from the statement of cash flows. For FedEx, the operating cash flows are $4.688 billion and the capital expenditures were $3.803 billion, so the free cash flow was $885 million. For UPS, the cash flow from operations was $7.216 billion and the capital expenditures were $1.355, so the free cash flow was $5.881 billion. These figures indicate that while FedEx might book the greater accounting profit of the two, UPS has a significant advantage in terms of free cash flow.
The thing about FedEx's cash flow statement is that it is missing items. While cash flows from investing activities are at $3.803 billion it is not specifically identified where this cash flow goes. I see this as being a problem. UPS has a much better free cash flow situation than FedEx does, something that should be of concern to people who hold FedEx stock. It is worth considering what can be done to improve the free cash flow at FedEx. The company is making a lot more investments than UPS is.
I would argue that FedEx needs to have more to show from the changes in cash position. UPS is able to generate substantially more cash flow from operations, and it does not invest nearly as much. This is part of an annual trend as well, where UPS is investing much less than FedEx is. Thus, FedEx should consider reducing its investments, unless these are critical investments for the long run growth of the company.
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