XPO logistic, Inc. is based in the United States of America and it is among the top ten largest transportation and logistics corporations in the world. The revenue base of the company is estimated at $15 billion while its customer base is estimated at 50,000, which are spread in 32 countries it serves. The XPO Inc logistics has about 1455 outlets in the 32 countries and more than 95000 employees. The company is the second largest in the world when it comes to the contract logistics and freight brokerage services ( Ontario Securities Commission, 2015) . In Europe, XPO inc. has the largest fleet where its main platform it operates in is e-fulfillment while in the western part of Europe it the major provider of less-than-truckload services. Understanding the financial operation of XPO and comparing it with other industry players is important in understanding the driving forces that spur the development of the company. Therefore, this paper will explore the financial ratios; compare the performance of the financial performance over time and against its competitors as well as the financial issues that have influenced XPO inc.
Financial ratios are the relationships, which are determined by using the financial information and are mainly used for the purposes of comparison. They are categorized into liquidity and profitability ratios. In this case, the liquidity ratios common with the XPO Inc include the current ratio, quick ratio, and cash ratio. On the other hand, the profitability ratios include gross margin, operating margin, and profit margin.
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Current Ratio
The current ratio is calculated by diving current assets by current liabilities. The creditors to determine the ability of the company to settle short-term debts (Gibson, 2011) mainly use this ration. It is thus helpful in determining the financial health of an organization. For the case of the XPO logistics, the current ratio for the past three financial years is as in the table below.
| Financial year ending | 31/12/17 | 31/12/16 | 31/12/2015 |
| Current ratio | 1.2 | 1.13 | 1.11 |
This shows that in the year ending 31/12/17, XPO logistics was able to pay 1.2-times of its debts. This has been on a rising trend from the financial year ending 31/12/2015 which was 1.11. This means that the financial health of the company is improving.
Quick Ratio
This is the measure of the ability in which a company is in a position to meet its short-term financial liabilities. The ratio is also commonly known as the acid test ratio ( Gibson, 2011) . For the case of the XPO inc. the quick ratios for the past three financial years are indicated in the table below.
| Financial year ending | 31/12/17 | 31/12/16 | 31/12/2015 |
| Quick ratio | 1.2 | 1.13 | 1.11 |
Quick ratio measures the number of dollars that are available in liquid assets, which can be utilized to offset every dollar of liability ( Gibson, 2011) . This means that in the financial year ending 31/12/2017, XPO logistics Inc had $1.5 of liquid assets to cover every $1 of the current liabilities. This has been on the rising trend from the financial year ending 31/12/2015 where the company quick ratio was 1.1.
Cash Ratio
| Financial year ending | 31/12/17 | 31/12/16 | 31/12/2015 |
| Cash ratio | 0.13 | 0.14 | 0.11 |
This is the ratio of the liquid asset to that of the current liabilities. It measures the ability of the company to pay its debts by using cash and its equivalents only but not any other asset. The XPO Inc has had fluctuation in its cash ratio over the past three financial years. In 2015 its cash was able to cover 11% of its current liabilities in 2016 it was 14% while in 2017 it was 13%. This means that the company has maintained a minimum of 10% cash and its equivalents to cover its current debts.
Profitability ratios
| Financial year ending | 31/12/17 | 31/12/16 | 31/12/2015 |
| Gross margin | 0.15 | 0.15 | 0.14 |
| Operating margin | 0.04 | 0.03 | 0.00 |
| Profit margin | 0.02 | 0.00 | 0.03 |
Gross Margin – this is the measure of how the company retains every dollar on its sales, which can be used for other debt obligations and costs ( Gibson, 2011) . In this regard, the higher the Gross margin the more the company is able to retain. In 2015, the company was in the position to retain 14% while for the 2016 and 2017 the gross margin was 15%.
Operating Margin -, this ratio is mainly used to measure the pricing strategy of the company as well as its operating efficiency. Operating margin helps to measure the amount of revenue that the company will remain with after settling all the variable costs, which include raw materials and the wages. In 2015, OXP logistics remained with $0 in its revenues after meeting all the variable costs ( Christopher, 2016) . However, in 2016 and 2017, the company was able to remain with 3% and 4% of the revenues after meeting its variable costs. This means that the operation efficiency of the company improved.
Profit margin - this ratio is helpful in determining the profitability of the company. It is calculated by dividing the net income by the net sales. The higher the ratio the higher the company is making the profits. For the case of OXP logistics, the profit margin was for the financial year 2015, 2016 and 2017 was 3%, 0% and 2% respectively. This means that the profitability of the company has not been constant which means that they need to place some interventions to address this issue.
Other firms operating in the logistics industry and competing with the OXP logistics include CEVA Inc and Estes express. XPO is ranked as the overall leader in the culture score scoring 71% while Estes express scoring 69% and the CEVA logistics scoring 64%. As compared to the competitors, OXP has extended its services to various countries and has a better financial base, which enables them to adopt the latest technologies that are ideal for the current market activities ( Christopher, 2016) . OX P also remunerates its employees, which enable them to retain top talents that are able to apply skills, which keep the company more competitive in terms of resource management and pricing strategies.
Some of the financial issues that have significantly impacted the OXP inc logistics include purchase order coordination which the staff ensures that fair prices are set that attract most clients. In addition, the company ensures that shipping of the materials is well planned to avoid delays, which are too costly to the company. Nonetheless, the company settles it’s financial promptly which limits –penalties and additional costs which may affect the profitability of the company ( Frias ‐ Aceituno, Rodríguez ‐ Ariza & Garcia ‐ Sánchez, 2014) . Finally, OXP ensures proper reporting and analysis of its financial information, which helps in predicting the future conditions of the organization financially. Due to all these, the company has been able to stay competitive in the logistics industry.
Recommendations
OXP should embrace the use of the latest technologies, which can help reduce the cost associated with the shipment.
The organization should also expand its operations to various countries in the world since its only found in 32 countries.
OXP inc should be able to increase its advertisement activities using the social media which will help them reach to many customers at low cost hence increasing customers base globally.
Conclusively, the financial analysis of the OXP logistics has proved that the organization uses effective management strategies since the financial health of the company is improving. This as compared to its competitors places the company in a better position to compete favourably in the logistics sector. However, there is a need for the company to increase its operation to different parts of the world and embrace the use of technology in its advertisement and operation. All these will ensure the company remain competitive and serve its customers to satisfaction level.
References
Christopher, M. (2016). Logistics & supply chain management . Pearson UK.
Frias ‐ Aceituno, J. V., Rodríguez ‐ Ariza, L., & Garcia ‐ Sánchez, I. M. (2014). Explanatory factors of integrated sustainability and financial reporting. Business strategy and the environment , 23 (1), 56-72.
Gibson, C. H. (2011). Financial reporting and analysis . South-Western Cengage Learning.
Higgins, R. C. (2012). Analysis for financial management . McGraw-Hill/Irwin.
Ontario Securities Commission. (2015). Ontario Teachers’ Pension Plan Board and XPO Logistics, Inc.
