Supply Chain Management

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Columbia Southern University *

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FIN6301

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Finance

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Jan 9, 2024

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docx

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SUPPLY CHAIN MANAGEMENT 1 Supply Chain Management Columbia Southern University FIN 6301 Corporate Finance Dr. Keith A. Wade Introduction

SUPPLY CHAIN MANAGEMENT 2 The current day of working capital (DWC) is an essential financial metric for assessing a company's liquidity and financial flexibility. In this context, we have calculated the DWC for FedEx Corp. using the financial data from the FY22 Annual Report. Comparing this ratio to the industry average is essential to determine how the company is performing relative to its peers. However, it is worth noting that DWC can vary widely depending on factors such as the size and complexity of a company's operations and the industry in which it operates. Therefore, any comparison should be made with caution and consider these factors. A well-managed supply chain can significantly affect a company's financial ratios and performance relative to the industry average. In the case of FedEx Corp., a well-managed supply chain can help improve its efficiency, liquidity, and profitability ratios by reducing costs associated with inventory management, transportation, and logistics. It can also help the company manage inventory effectively, reducing the risk of stock-outs and enabling the company to fulfill customer orders in a timely manner. Thus, a well-managed supply chain is critical to improving a company's financial ratios and overall performance in the market. Days Of Working Capital (DWC) To calculate the most current days of working capital (DWC) for FedEx Corp, we need to use the following formula: DWC = (Current Assets - Current Liabilities) / (Operating Expenses / 365) Using the financial data from the FY22 Annual Report (May 31, 2022) from FedEx Corp's Annual/10K report filing with the SEC, we have (FedEx, 2023):  Current Assets: $20,365 million  Current Liabilities: $14,274 million  Operating Expenses (for the previous 12 months): $87,267 million

SUPPLY CHAIN MANAGEMENT 3 Plugging these values into the formula, we get: DWC = ($20,365 - $14,274) / ($87,267 / 365) DWC = $6091 / $236,560 DWC = 0.0258 Therefore, the current day of working capital available for FedEx Corp. is approximately 2.6 days (rounded to one decimal place). To compare FedEx Corp's 2.6 days of current days of working capital (DWC) to others in the industry, we can look at the DWC ratios of other companies in the transportation and logistics sector. However, it is worth noting that DWC can vary widely depending on factors such as the size and complexity of a company's operations, the industry in which it operates, and the current economic and market conditions. Therefore, any comparison should be made with caution and take into consideration these factors. According to a study by the Hackett Group, the average DWC for the transportation and logistics industry was approximately 25 days in 2020 (The Hackett Group, 2023). This suggests that FedEx Corp's DWC of 2.6 days is relatively low compared to the industry average, indicating that the company may have less financial flexibility than its peers. However, it is essential to note that some companies in the industry may have higher or lower DWC ratios depending on their specific circumstances. For example, companies with higher inventory levels or longer payment terms with suppliers may have higher DWC ratios. In contrast, those with more efficient working capital management practices may have lower ratios. Overall, while comparing DWC ratios can provide some insight into a company's financial health and flexibility, it is important to consider the full context of a company's operations and financial performance when making any comparisons or investment decisions. Importance of Comparison

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SUPPLY CHAIN MANAGEMENT 4 Comparing FedEx Corp.'s ratio to the industry average is crucial because it allows us to assess how the company is performing relative to its peers in the same industry. By comparing financial ratios such as profitability, liquidity, solvency, and efficiency ratios to the industry average, we can determine if a company is outperforming or underperforming compared to its competitors. For example, if FedEx Corp.'s profit margin ratio is higher than the industry average, it could suggest that the company is more profitable than its competitors. Similarly, if its liquidity ratio is lower than the industry average, it could indicate that the company is less liquid compared to its peers. Analyzing a company's financial ratios relative to the industry average provides investors and analysts with important insights into the company's financial health and competitiveness in the market. It can also help identify areas where the company is performing well and areas where it needs improvement. Supply Chain A well-managed supply chain can significantly affect a company's financial ratios and performance relative to the industry average. For example, suppose a company like FedEx Corp. has a well-managed supply chain. In that case, it can help improve its efficiency ratios by reducing inventory management, transportation, and logistics costs. This can lead to a higher asset turnover ratio, which measures how efficiently a company is using its assets to generate revenue (Brigham & Ehrhardt, 2019). Additionally, a well-managed supply chain can help improve a company's liquidity ratios by ensuring that inventory is managed effectively, reducing the risk of stock-outs, and enabling the company to fulfill customer orders in a timely manner. This can help improve the company's

SUPPLY CHAIN MANAGEMENT 5 cash conversion cycle, which measures the time it takes to convert inventory and accounts receivable into cash. A well-managed supply chain can also help improve a company's profitability ratios by reducing procurement, transportation, and inventory management costs. This can lead to a higher gross profit margin, which measures the percentage of revenue that remains after deducting the cost of goods sold. In summary, a well-managed supply chain can help a company like FedEx Corp. improve its financial ratios and performance relative to the industry average by improving efficiency, managing inventory effectively, reducing costs, and improving customer service. Conclusion In conclusion, the current day of working capital (DWC) is an essential financial metric used to assess a company's liquidity and financial flexibility. By calculating and comparing FedEx Corp's DWC ratio to the industry average, we can determine how the company is performing relative to its peers. However, it is essential to consider factors such as the size and complexity of a company's operations and the industry in which it operates. Furthermore, a well- managed supply chain can significantly improve a company's financial ratios and performance relative to the industry average by reducing costs associated with inventory management, transportation, and logistics, managing inventory effectively, reducing the risk of stock-outs, and improving customer service. Ultimately, analyzing a company's financial ratios and the efficiency of its supply chain provides investors and analysts with crucial insights into its financial health and market competitiveness. References

SUPPLY CHAIN MANAGEMENT 6 Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice (16th ed.). Retrieved from https://online.vitalsource.com/books/9781337909730 FedEx. (2023). 2022 Annual Report. Memphis: FedEx. The Hackett Group. (2023). The Hackett Group . Retrieved from Finance: https://www.thehackettgroup.com/?s=average+working+capital

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