Part One Company Analysis: The Following Is A Summary Of Per

Part One Company Analysisthe Following Is A Summary Of Performance Da

Part One: Company Analysis The following is a summary of performance data of FedEx over a three-year period: (in millions) Year 1 Year 2 Year 3 Sales 34,734 39,304 42,680 Cost of Goods Sold 33,550 37,852 40,648 Net Income 1,184 1,452 2,032 Assets 25,654 27,385 29,903 Total Debt 11,695 10,498 13,926 Equity 15,654 15,220 14,727 Operating Cash Flow 1,998 2,378 3,186 Investment Cash Flow -2,781 -3,419 -4,049 Financing Cash Flow -

Required: Given the information in the table above, calculate the following: Profit margin on sales Return on assets Return on equity Total debt to total assets Total asset turnover Explain and evaluate your results as they pertain to profitability, debt, and asset turnover for the company over a three-year period.

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Analyzing FedEx’s financial performance over a three-year period involves calculating key financial ratios that gauge profitability, asset utilization, and leverage. The ratios—profit margin, return on assets (ROA), return on equity (ROE), debt-to-assets ratio, and asset turnover—offer insights into how effectively the company generates profit, utilizes its assets, and manages its debt obligations over time.

Profit Margin on Sales measures how much profit a company makes for every dollar of sales. It is calculated as Net Income divided by Sales. For Year 1, profit margin is (1,184 / 34,734) × 100 ≈ 3.41%. Year 2, (1,452 / 39,304) × 100 ≈ 3.69%. Year 3, (2,032 / 42,680) × 100 ≈ 4.76%. The increasing trend indicates improved efficiency in converting sales into net profit, possibly due to operational efficiencies or economies of scale.

Return on Assets (ROA) indicates how effectively the company uses its assets to generate profit. It is calculated as Net Income divided by Average Total Assets. The average assets over the period are necessary; for instance, Year 1 assets are 25,654, Year 2 assets are 27,385, and Year 3 assets are 29,903. The ROA for Year 1 is (1,184 / ((25,654 + 27,385)/2)) ≈ 4.53%. Year 2, (1,452 / ((27,385 + 29,903)/2)) ≈ 5.24%. Year 3, (2,032 / ((29,903 + 29,903)/2)) ≈ 6.79%. The rising ROA indicates that FedEx has become more efficient in using its assets to generate profits.

Return on Equity (ROE) measures the profitability relative to shareholders’ equity. It is calculated as Net Income divided by Average Equity. Using the data, Year 1: (1,184 / ((15,654 + 15,220)/2)) ≈ 7.66%. Year 2: (1,452 / ((15,220 + 14,727)/2)) ≈ 9.94%. Year 3: (2,032 / ((14,727 + 14,727)/2)) ≈ 13.80%. The increasing ROE suggests that FedEx is generating greater profit from its shareholders’ investments over time.

Total Debt to Total Assets Ratio reveals the proportion of assets financed through debt. It is calculated as Total Debt divided by Total Assets. Year 1: (11,695 / 25,654) ≈ 45.58%. Year 2: (10,498 / 27,385) ≈ 38.36%. Year 3: (13,926 / 29,903) ≈ 46.56%. The decrease in Year 2 suggests improved leverage management, but the slight increase in Year 3 indicates a rising reliance on debt, which could pose financial risks.

Total Asset Turnover measures how efficiently the company uses its assets to generate sales. It is calculated as Sales divided by Average Assets. Year 1: 34,734 / ((25,654 + 27,385)/2) ≈ 1.36. Year 2: 39,304 / ((27,385 + 29,903)/2) ≈ 1.44. Year 3: 42,680 / ((29,903 + 29,903)/2) ≈ 1.43. Slight improvements over the years indicate improved efficiency in asset utilization.

In summary, FedEx has demonstrated improved profitability and efficiency over the three-year period, as reflected by rising profit margins, ROA, ROE, and asset turnover ratios. The debt ratio fluctuates, signaling potential concerns with rising leverage in Year 3. The company’s ability to generate increasing profits from assets and equity indicates operational strength. However, the rising debt levels in Year 3 should be monitored to ensure financial stability.

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