FedEx Current Debt

FDXB34 Stock  BRL 1,710  0.00  0.00%   
FedEx holds a debt-to-equity ratio of 1.508. With a high degree of financial leverage come high-interest payments, which usually reduce FedEx's Earnings Per Share (EPS).

Asset vs Debt

Equity vs Debt

FedEx's liquidity is one of the most fundamental aspects of both its future profitability and its ability to meet different types of ongoing financial obligations. FedEx's cash, liquid assets, total liabilities, and shareholder equity can be utilized to evaluate how much leverage the Company is using to sustain its current operations. For traders, higher-leverage indicators usually imply a higher risk to shareholders. In addition, it helps FedEx Stock's retail investors understand whether an upcoming fall or rise in the market will negatively affect FedEx's stakeholders.
For most companies, including FedEx, marketable securities, inventories, and receivables are the most common assets that could be converted to cash. However, for FedEx, the most critical issue when managing liquidity is ensuring that current assets are properly aligned with current liabilities. If they are not, FedEx's management will need to obtain alternative financing to ensure there are always enough cash equivalents on the balance sheet to meet obligations.
Given that FedEx's debt-to-equity ratio measures a Company's obligations relative to the value of its net assets, it is usually used by traders to estimate the extent to which FedEx is acquiring new debt as a mechanism of leveraging its assets. A high debt-to-equity ratio is generally associated with increased risk, implying that it has been aggressive in financing its growth with debt. Another way to look at debt-to-equity ratios is to compare the overall debt load of FedEx to its assets or equity, showing how much of the company assets belong to shareholders vs. creditors. If shareholders own more assets, FedEx is said to be less leveraged. If creditors hold a majority of FedEx's assets, the Company is said to be highly leveraged.
  
Check out the analysis of FedEx Fundamentals Over Time.
For information on how to trade FedEx Stock refer to our How to Trade FedEx Stock guide.

FedEx Debt to Cash Allocation

FedEx has accumulated 19.75 B in total debt with debt to equity ratio (D/E) of 1.51, which is about average as compared to similar companies. FedEx has a current ratio of 1.48, which is within standard range for the sector. Debt can assist FedEx until it has trouble settling it off, either with new capital or with free cash flow. So, FedEx's shareholders could walk away with nothing if the company can't fulfill its legal obligations to repay debt. However, a more frequent occurrence is when companies like FedEx sell additional shares at bargain prices, diluting existing shareholders. Debt, in this case, can be an excellent and much better tool for FedEx to invest in growth at high rates of return. When we think about FedEx's use of debt, we should always consider it together with cash and equity.

FedEx Assets Financed by Debt

Typically, companies with high debt-to-asset ratios are said to be highly leveraged. The higher the ratio, the greater risk will be associated with the FedEx's operation. In addition, a high debt-to-assets ratio may indicate a low borrowing capacity of FedEx, which in turn will lower the firm's financial flexibility.

Understaning FedEx Use of Financial Leverage

FedEx's financial leverage ratio helps determine the effect of debt on the overall profitability of the company. It measures FedEx's total debt position, including all outstanding debt obligations, and compares it with FedEx's equity. Financial leverage can amplify the potential profits to FedEx's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if FedEx is unable to cover its debt costs.
FedEx Corporation provides transportation, e-commerce, and business services in the United States and internationally. The company was founded in 1971 and is based in Memphis, Tennessee. FEDEX CORP operates under Integrated Freight Logistics classification in Brazil and is traded on Sao Paolo Stock Exchange. It employs 384000 people.
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Additional Information and Resources on Investing in FedEx Stock

When determining whether FedEx offers a strong return on investment in its stock, a comprehensive analysis is essential. The process typically begins with a thorough review of FedEx's financial statements, including income statements, balance sheets, and cash flow statements, to assess its financial health. Key financial ratios are used to gauge profitability, efficiency, and growth potential of Fedex Stock. Outlined below are crucial reports that will aid in making a well-informed decision on Fedex Stock:
Check out the analysis of FedEx Fundamentals Over Time.
For information on how to trade FedEx Stock refer to our How to Trade FedEx Stock guide.
You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
Please note, there is a significant difference between FedEx's value and its price as these two are different measures arrived at by different means. Investors typically determine if FedEx is a good investment by looking at such factors as earnings, sales, fundamental and technical indicators, competition as well as analyst projections. However, FedEx's price is the amount at which it trades on the open market and represents the number that a seller and buyer find agreeable to each party.

What is Financial Leverage?

Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing. In most cases, the debt provider will limit how much risk it is ready to take and indicate a limit on the extent of the leverage it will allow. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan. The concept of leverage is common in the business world. It is mostly used to boost the returns on equity capital of a company, especially when the business is unable to increase its operating efficiency and returns on total investment. Because earnings on borrowing are higher than the interest payable on debt, the company's total earnings will increase, ultimately boosting stockholders' profits.

Leverage and Capital Costs

The debt to equity ratio plays a role in the working average cost of capital (WACC). The overall interest on debt represents the break-even point that must be obtained to profitability in a given venture. Thus, WACC is essentially the average interest an organization owes on the capital it has borrowed for leverage. Let's say equity represents 60% of borrowed capital, and debt is 40%. This results in a financial leverage calculation of 40/60, or 0.6667. The organization owes 10% on all equity and 5% on all debt. That means that the weighted average cost of capital is (.4)(5) + (.6)(10) - or 8%. For every $10,000 borrowed, this organization will owe $800 in interest. Profit must be higher than 8% on the project to offset the cost of interest and justify this leverage.

Benefits of Financial Leverage

Leverage provides the following benefits for companies:
  • Leverage is an essential tool a company's management can use to make the best financing and investment decisions.
  • It provides a variety of financing sources by which the firm can achieve its target earnings.
  • Leverage is also an essential technique in investing as it helps companies set a threshold for the expansion of business operations. For example, it can be used to recommend restrictions on business expansion once the projected return on additional investment is lower than the cost of debt.
By borrowing funds, the firm incurs a debt that must be paid. But, this debt is paid in small installments over a relatively long period of time. This frees funds for more immediate use in the stock market. For example, suppose a company can afford a new factory but will be left with negligible free cash. In that case, it may be better to finance the factory and spend the cash on hand on inputs, labor, or even hold a significant portion as a reserve against unforeseen circumstances.

The Risk of Financial Leverage

The most obvious and apparent risk of leverage is that if price changes unexpectedly, the leveraged position can lead to severe losses. For example, imagine a hedge fund seeded by $50 worth of investor money. The hedge fund borrows another $50 and buys an asset worth $100, leading to a leverage ratio of 2:1. For the investor, this is neither good nor bad -- until the asset price changes. If the asset price goes up 10 percent, the investor earns $10 on $50 of capital, a net gain of 20 percent, and is very pleased with the increased gains from the leverage. However, if the asset price crashes unexpectedly, say by 30 percent, the investor loses $30 on $50 of capital, suffering a 60 percent loss. In other words, the effect of leverage is to increase the volatility of returns and increase the effects of a price change on the asset to the bottom line while increasing the chance for profit as well.