FedEx Corporation (FDX) - Financial and Strategic SWOT Analysis

The current ratio is one of the common liquidity rations that tries to assess the ability of an organization to settle its short-term obligations using its short-term assets. Ideally, the ratio tries to determine if the firm can afford to settle its current liabilities falling within one year’s time (Bragg, 2012). Liquidity in an organization translates to the cash position which gives the firm the power to settle its debts and expenses falling due such as interest expenses on long-term debt, rent, office supplies among other aspects. The ratio is given by the ratio of short-term assets against the current obligations.

Table 1

Current Ratio Analysis for Fedex 

Based on the above analysis, the current ratio for Fedex in 2014 was 1.82 and this is a good indicator that the company was financially liquid – good financial health based on this liquidity ratio. Tentatively, a ratio of 1.00 and above is treated as good indicating that the company has more current assets than its current obligations, on average (Bragg, 2012). Comparing the 2014 current ratio with that of 2013, it is clear that there is an upward change – the ratio decreased through the period from 1.96 to 1.82. Such a trend tells that the company’s liquidity position reduced during this period (Bragg, 2012). From the investors’ point of view, the trends indicate that Fedex’s liquidity went down and in 2014, the company could afford to pay off lesser debts than in 2013.

There are several approaches that the management can adopt to improve the cash flow and management to boost the financial health of the company. For instance, the management can speed up the conversion cycle of debtors, delay purchases, adopt more stringent for collection of accounts receivables, and sell-off unproductive assets (Bragg, 2012). Such aspects would create room for more cash flows into the company and improve the current ratio. Consequently, this tells that the company has to change its cash management strategies to accommodate these changes.

References 

Bragg, S. M. (2012). Business ratios and formulas: A comprehensive guide, third edition . Hoboken, N.J: John Wiley & Sons.