When it released its first quarter earning for fiscal 2007, FedEx Corporation also projected that its shipping volume would be lighter and that its profit growth would be the lowest in years. As reported in the Wall Street Journal (March 22, 2007), FedEx cited the fact that many companies were “thinning inventories to ride out the economic slowdown.”
a. What does it mean for a company to “thin” its inventories? How would such a business practice aid a company during an economic recession?
b. Where in the financial statements would a reader be able to discern that a company was thinning its inventories? What effect would this have on the reader’s analysis of the company’s financial performance?
c. Do the goods shipped by FedEx appear on FedEx’s balance sheet? Discuss.