o Refer to the most recent FedEx financial statementwhich can be found at www.fe
ID: 2447497 • Letter: O
Question
o Refer to the most recent FedEx financial statementwhich can be found at www.fedex.com or through the Mergent Onlinedatabase in the LRC.
o Explain what management means when it says someleases “ qualify as off-balance sheet” financing.
o Refer to the note on Lease Commitments in thedisclosure notes. Determine FedEx’s capital leaseliability.
o If the operating leases were capitalized,approximately how much would that increase the capital leaseliability?
o Determine the impact on the company’sdebt-equity ratio. (Refer to the balance sheet).
Explanation / Answer
A form of financing in which large capital expenditures are notadded to the company's balance sheet throughout variousclassification methods. Companies will often useoff-balance-sheet financing to keep their debt to equity (D/E) and leverageratios low, especially if the inclusion of a large expenditurewould break negative debt covenants.
Operating leases are one of the most common forms ofoff-balance-sheet financing. Meaning, the asset itself is kept backon the lessor's balance sheet, and the lessee supplies informationon required rental expense only for use of the asset.
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