Strayer FedEx Earnings Call Questions Listen (or read the transcript) to your organization’s or Fedex’s most recent earnings call and consider the followin

Strayer FedEx Earnings Call Questions Listen (or read the transcript) to your organization’s or Fedex’s most recent earnings call and consider the following and respond to the profit margin question.

Have you ever listened to an earnings call?
What topics were included? Which were most helpful or insightful? Were there topics you wished were included or expanded upon?
There is likely a discussion of the Profit Margin results. Was there an increase or decrease in Profit Margin and by how many basis points? Explain what this implies, what is the driving force, and what actions would you recommend?
Were the analysts’ questions aggressive and challenging or supportive and respectful? How well did management respond to the questions?
What additional insights were you able to gain in regards to the company’s financial health, forward guidance, and strategic financial decisions?
Was there any information or perspective shared that a competitor could benefit from?
How will this additional information support your effectiveness within the organization?

*Basis points are a common measure used to denote .0001. Going from a 10.50% Profit Margin to a 10.15% is said to be a reduction of “35 basis points.”

EARNINGS CALL – FEDEX

http://investors.fedex.com/news-and-events/upcomin… Using Accounting Information
pp. 36–40
Larry M. Walther
Larry M. Walther
Using Accounting Information pp. 36–40
Using Accounting Information pp. 36–40
1st edition
© 2015 Larry M. Walther, under nonexclusive license to Christopher J. Skousen &
bookboon.com. All material in this publication is copyrighted, and the exclusive
property of Larry M. Walther or his licensors (all rights reserved).
ISBN 978-87-7681-583-7
Using Accounting Information pp. 36–40
Contents
Contents
7
Global Accounting Issues
36
7.1
Issues in International Trade
37
7.2
Global Subsidiaries
37
7.3
Global Trading Transactions
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Using Accounting Information pp. 36–40
Global Accounting Issues
7 Global Accounting Issues
Understand that international trade no longer simply means importing and exporting. The notion of
domestic and foreign operations is replaced by an understanding that trade and ownership has become
global in nature. Companies have added subsidiaries in many countries, formed cooperative alliances,
listed shares on multiple stock exchanges around the globe, engaged in global cross-border debt financing,
and set up service centers that utilize technology to provide seamless customer support around the world.
This is indeed a “megatrend” and a foray into uncharted terrain. Each of us, no matter where we live
on this planet, is being touched by the phenomena. Indeed, persons from around the world are reading
these same words at the same time as you. Likewise, financial data is being shared globally!
What is the implication of global utilization of accounting information? In the simplest of terms, users
must understand something about how accounting information is prepared to be able to effectively rely
on it. What if each country had its own accounting rules? You can see that misinterpretation and lack
of understanding could be a real problem. For example, what if a company reported their “turnover” as
10,000,000 euros? What would you conclude? For starters, you would need to know that “turnover” is
synonymous with “revenue,” and you would need to know how much a euro is worth. But, my example
is not hypothetical; it is real. Terminology and methods are not consistent from country to country.
That is why the audit opinion illustrated earlier in this chapter includes a reference to the country of
GAAP origin.
Accounting rule makers from around the globe are scrambling to bring about global convergence of
accounting techniques. No major country has opted out of this endeavor. The FASB has been working
feverishly to rework certain accounting rules to match global approaches. For example, the EPS approach
you learned earlier in this chapter was the result of a FASB reworking of the U.S. rules to match the
global approach.
The International Accounting Standards Board (IASB) is another important body. It issues its own
accounting standards, which in many respects provide a beacon to guide the efforts going on within
each country. Countries without their own standard setting body may legitimately expropriate the IASB
standards as their own. The IASB membership is broad based, bringing together experts from many
countries. Although each contributor to the IASB probably brings ideas to the table with a “home-country”
bias, the general tenor has remained one of cooperation toward a shared goal. The IASB maintains an
excellent web site (www.IASB.org) if you wish to learn more.
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Using Accounting Information pp. 36–40
Global Accounting Issues
Another useful site to explore global accounting issues is www.accountingeducation. There are many
global contributors to that site, and they provide a weekly electronic newsletter that is available at no
charge.
7.1
Issues in International Trade
Companies engaging in global business face some specific reporting challenges. Two of those challenges
are (1) how to consolidate global subsidiaries and (2) how to account for global transactions denominated
in alternative currencies. These subjects quickly become complex, and only a brief introduction to each
is appropriate at this time.
7.2
Global Subsidiaries
When a parent corporation has a subsidiary outside of its home country, the financial statements of that
subsidiary may be prepared in the “local” currency of the country in which it operates. But, the parent’s
financials are prepared in the “reporting” currency of the country in which it is domiciled. Thus, to
consolidate the parent and sub first requires converting the sub’s financial information into the reporting
currency. Facts and circumstances will dictate whether the conversion process occurs by a process known
as the functional currency translation approach or an alternative approach known as remeasurement:
• Translation is appropriate when the subsidiary is somewhat autonomous. It will be selfsupporting by virtue of generating and reinvesting cash flows in its own operations; the
parent is primarily an investor. This approach converts the assets and liabilities to the
reporting currency based upon prevailing exchange rates at the balance sheet date. A “plug”
translation adjustment may be needed to maintain a “balanced” translated set of financials,
and that plug is an item of “other comprehensive income” (not operating income).
• Remeasurement would be used when translation is not appropriate (e.g., the subsidiary is a
purchasing group established to obtain inventory for the parent). Remeasurement converts
assets and liabilities at a variety of exchange rates, depending on the type of asset or liability
and the date of its origination. Again, a “plug” may be needed to balance, but this plug will
produce a positive (credit) or negative (debit) effect on operating income.
The above discussion is quite oversimplified. Entire chapters in advanced accounting texts are usually
devoted to this subject, and even those chapters rarely fully develop the theory and rationale underlying
the prescribed mechanics.
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Using Accounting Information pp. 36–40
7.3
Global Accounting Issues
Global Trading Transactions
Many firms buy goods from foreign suppliers and/or sell goods to foreign customers. The terms of
the transaction will stipulate how payment is to occur and the currency for making that settlement.
If the currency is a “foreign currency,” then some additional thought must be given to the associated
bookkeeping. Fortunately, this issue is not so complicated and can be easily illustrated with a few examples.
Suppose Bentley’s Bike Shop purchases bicycles from GiroCycle of Switzerland. On July 1, 20X6, Bentley
purchased 10 bikes, agreeing to pay 20,000 Swiss francs within 60 days. Bentley is in Cleveland, Ohio,
and the U.S. dollar is its primary currency. On July 1, Bentley will record the purchase with the following
accounts:
7-1-X6
Inventory
?????
Accounts Payable
?????
Purchased bicycles, agreeing to pay 20,000
Swiss francs in 60 days
But, what amounts should be debited and credited? If 20,000 were used, the accounts would cease to
be logical. The total Inventory balance would be illogical since it would include this item, and all other
transactions in other currencies, thereby becoming a meaningless hodge-podge of currency units.
Total Accounts Payable would become unintelligible as well. Therefore, Bentley needs to measure the
transaction in dollars. On July 1, assume that the current exchange rate (i.e., the “spot rate”) is $0.75
U.S. dollars to acquire 1 Swiss franc. The correct entry would be:
7-1-X6
Inventory
15,000
Accounts Payable
15,000
Purchased bicycles, agreeing to pay 20,000
Swiss francs in 60 days (spot rate is $0.75:
20,000 X $0.75 = $15,000)
By the August 29 settlement date, assume that the dollar has weakened and the spot rate is $0.80. Bentley
will have to pay a bank $16,000 (20,000 X $0.80) to buy the 20,000 francs needed to settle the obligation.
The following entry shows that the difference between the initially recorded payable ($15,000) and the
cash settlement amount ($16,000) is to be recorded as a foreign currency transaction loss:
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Using Accounting Information pp. 36–40
8-29-X6
Global Accounting Issues
Accounts Payable
15,000
Currency Exchange Loss
1,000
Cash
16,000
Paid foreign currency payable and recorded
exchange loss (20,000 Swiss francs X $0.80 =
$16,000)
If the exchange rate had gone the other way to $0.70 by the August 29 settlement date, a foreign currency
transaction gain (credit) would have been needed to balance the difference between the $15,000 payable
and $14,000 ($0.70 X 20,000) required cash disbursement.
In the preceding example, the foreign currency payable was created and settled within the same accounting
period. It is important to know that foreign currency payables and receivables that exist at the close of
an accounting period must also be adjusted to reflect the spot on the balance sheet date. The following
sale transaction will illustrate this important point.
Suppose Vigeland Corporation sold goods to one of its customers in England, agreeing to accept payment
of 100,000 British pounds in 90 days. On the date of sale, December 1, 20X1, the spot rate for the pound
was $1.75. Vigeland prepared financial statements at its year end on December 31, 20X1, at which time
the spot rate for the pound was $1.90. As expected, the foreign currency receivable was collected on
February 28, 20X2; Vigeland immediately converted the 100,000 pounds to dollars at the then current
exchange rate of $1.70. The following illustrates the sale, year-end adjustment of the foreign currency
receivable, and subsequent collection:
12-1-X1
Accounts Receivable
175,000
Sales
175,000
Sold goods to a customer in England,
agreeing to accept 100,000 British pounds
(100,000 pounds X $1.75 spot rate = $175,000)
12-31-X1
Accounts Receivable
15,000
Currency Exchange Gain
15,000
Year-end adjustment to increase accounts
receivable to the spot rate (100,000 pounds
X $1.90 spot rate = $190,000; $190,000 $175,000 = $15,000 gain)
2-28-X2
Cash
170,000
Currency Exchange Loss
20,000
Accounts Receivable
190,000
Collected 100,000 pounds and converted
them to dollars (100,000 x $1.70 spot rate).
Recorded loss for decline in value of receivable
since year end ($190,000 vs.$170,000)
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Using Accounting Information pp. 36–40
Global Accounting Issues
Some companies may wish to avoid foreign currency exchange risks like those illustrated above. The
simplest way to avoid such exposure is to convince your trading partner to make or take payment in
your home currency. In the alternative, there are various financial agreements that can be structured
with banks or others to transfer away this risk (but, forego the opportunity for gains as well). As you
might imagine, such hedging transactions can grow quite complex. Great care must be taken to record
and monitor these activities, and advanced accounting courses are apt to devote substantial time to this
subject.
For internal use by Jack Welch Management Institute in 2015
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