Business Strategies

Student: Cleopatra Ashmeil

Hello everyone,

“Financial ratios are designed to extract important information that might not be obvious simply from examining a firm’s financial statements” (Brigham and Ehrhardt, 2019, pg. 103). Shah, Pitafi,

and Soomro (2019) posit that it is important to analyze the profitability of a firm as it tells how the firm is performing, it informs stockholders investment decisions, and helps creditors determine the ability

of the firm to repay debt. The profitability of a firm will determine its ability to put its strategic plans in motion because it takes money to implement these plans. Below are the financial ratios and analyses

of XPO Logistics, Inc for the years 2016 to 2020.

RETURN ON ASSETS RATIO

2020 2019 2018 2017 2016

$ Million $ Million $ Million $ Million $ Million

Net Income -13 241 444 360 85

Total Assets 16,169 14,128 12,270 12,602 11,698

ROA -0.80% 1.71% 3.62% 2.86% 7.27%

Industry Average 0.60% 1.60% -0.30% 0.90% 2%

According to the results of the five-year trend, ROA for XPO shows it has been higher than the industry average, indicating it has been effective in creating profit for the company from the use of its

assets. In 2020, however, the company suffered a loss, I would assume that was due to the Pandemic.

RETURN ON EQUITY RATIO

2020 2019 2018 2017 2016

$ Million $ Million $ Million $ Million $ Million

Net Income -13 241 444 360 85

Total Equity 2,849 2,896 3,970 4,010 3,038

ROE -0.46% 8.32% 11% 9% 2.80%

Industry Average 0% 10.20% -5.90% 4% 2.30%

ROE shows that for 2016 to 2018 the company’s ratio was higher than the industry’s, which means stockholders were profitable. However, for 2019 and 2020, XPO fell below the industry average,

suggesting a loss for stockholders.

DEBT TO ASSETS RATIO

2020 2019 2018 2017 2016

$ Million $ Million $ Million $ Million $ Million

Total Debt 5,240 5,182 3,902 4,418 4,732

Total Assets 16,169 14,128 12,270 12,602 11,698

DTA 0.33% 0.37% 0.32% 0.35% 0.40%

Debt-to-Assets Ratio shows a fluctuation for the five-year period which indicates that the company utilized less debts to finance its assets. For 2016, 40% of XPO’s debt was paid by creditors while

60% was paid by stockholders. For 2017 to 2020, less debt was paid by creditors. This means that investing in XPO Logistics would be minimal risk.

CASH RETURN ON ASSETS

2020 2019 2018 2017 2016

$ Million $ Million $ Million $ Million $ Million

Operational Cash Flow 388 629 1,102 785 622

Total Assets 16,169 14,128 12,270 12,602 11,698

CROA 0.24% 0.45% 0.90% 0.62% 0.53%

Cash Return on Assets shows a steady increase for 2016 to 2018 and a decline for 2019 and 2020.

I would suggest that XPO is in a good position to implement its strategic plans relative to continuous improvement on their technological innovations and to hire and retain additional employees who

will help to achieve the organization’s objectives of “moving the world forward.”

References

Brigham, E.F. and Ehrhardt, M.C. (2019). Financial Management Theory and Practice 16th edition Cengage Publishing

Shah, S.S., Pitafi, S.A., and Soomro, A. (2019). The nexus between capital structure and firms' profitability: Evidence from oil and gas sector of Pakistan. 13(1), 109

https://0634km6rv-mp03-y-https-www-proquest-com.prx-keiser.lirn.net/docview/2286900419/9B8D91E2EE754B31PQ/1?accountid=35796

https://www.macrotrends.net/stocks/charts/XPO/xpo-logistics/financial-ratios