THE RELATIONSHIP BETWEEN

FINANCIAL RISK MANAGEMENT

PRACTICES AND FINANCIAL
PERFORMANCE— A CASE STUDY ON
TRANSPORT & LOGISTICS COMPANY
IN THE UNITED KINGDOM

Contents
Chapter 1: Introduction 4

1.1. Background of the study 4

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 1.2 Problem Statement 4

1.6 Research Rationale 8

1.7 Aims and Objectives 9

1.8 Research Questions 9

1.9 Methodology 9

1.10 Synopsis of the Chapters 9

2.0. Literature Review 10

2.1. Understanding the Types of Financial Risks 10

2.2 Types of Financial Risks and its impact on financial performance 12

2.3. Understanding Financial Risk Management Practices 16

Credit risk management strategies that can be implemented 18

Research gap 20

Chapter 3: Data and Methodology 21

3.1 Introduction 21

3.2 Research Onion 21

3.3 Research Philosophy 22

3.4 Research Approach 24

3.5 Research Strategy 25

3.6 Research Choice 26

3.8 Research Design 26

3.9 Research Techniques and Procedures 27

3.9.1 Data Collection 27

3.9.2 Search Strategy 28

3.9.3 Inclusion and Exclusion Criteria 28

3.10 Data Analysis 29

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 3.11 Ethical Considerations 30

4. Results, Analysis and Discussion 30

4.1. Results 30

4.2. Analysis 33

4.3. Discussion 36

Conclusion 40

References 44

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Chapter 1: Introduction
1.1. Background of the study
Managing risk in the modern company climate is more challenging than it has ever been before
because of the rising bankruptcy rate, which increases the chance of suffering catastrophic
financial losses. It is imperative for the continued existence of any organization to have a healthy
financial position. As a result of the current economic climate and standard operating procedures,
businesses have to delay payments more frequently, which has led to an increased focus on credit
risk management (Yang, Ishtiaq and Anwar, 2018). Controlling credit is a crucial component of
managing credit effectively. The majority of the decisions regarding the amount of credit that
should be granted to customers or borrowers, as well as the enforcement of the terms of the
credit agreement, are decided in this section. If a corporation does not have adequate credit
control, it may put their liquidity and profitability at risk. At the core of risk management is
determining how much risk can be tolerated, how to minimize those risks that cannot be
tolerated, and how to handle the true hazards that the firm faces.
1.2 Problem Statement
FedEx Corporation of FDX is one of the global leaders in delivery service. The firm offers e-
commerce, transportation and business service. The firm has three segments FedEx Express that
contributes 50% to the firm’s total revenue, FedEx Ground that contributes 36% to their total
revenue and FedEx Freight Segment that contributes 9% to the total revenue (Korol and
Poltorak, 2018). Effective financial performance in the entire three segment helps to manage
effective financial performance however, there are certain risk factors involved. In the year 2021,
FedEx reflected a healthy financial performance and achieved record revenues due to their
digital innovations and excellence. It helped the firm to achieve 21.3% increase in revenues as
compared to the last year and they grasped an $84 billion in 2021. The operating margin
increased by 3.5%. Demand for good delivery increased. However, the Tiprank’s Risk Factor
Tool has revealed that they have risk in finance and corporate category and identified 27 risks
specially related to credit risk (Belas et al., 2018). Likewise, this research shall help to identify
different credit risk that the firm encounters and reflect strategies to mitigate the risks.

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 Figure 1: Showing the risks for FedEx
Source: (Belas et al., 2018)
1.3 Financial Risks in FedEx
FedEx faces external risks due to slow economic conditions and trade war. The firm has 261
million shares and a net debt of $15.3 billion by 2019. There share cost dropped up to $160 in
2020. FedEx has also been encountered by cyber-attack and investors concerned due to the
financial damage and the firm could have been bankrupt and they continuously faced declined
profit. Additionally the trade war between EU and China along with Mexico, Canada and South
Korea increased the risk and that further increased their credit risk as they feared whether or not
they can repay their debts and profit shares to the shareholders (Giese et al., 2019).US is a
growing economy but is still effected by the external factors and that impacts the financial
performance of the firms like FedEx.

Figure 2: Showing the financial position of FedEx

Source: (Giese et al., 2019)

1.4 Financial risk management practices

There is various risk management strategies that firms like FedEx can use. FedEx needs to verify
the data regularly. Regular verification of data will help the organization to identify credit risk if
any.
Maintaining a regular schedule of scorecard validation will help in tracking the financial
transaction of the operational activities in the organization. The efficiency of the credit rules may
be improved with the aid of an outside auditor who can examine the model and point out any
flaws.

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The organization needs to keep a close eye on the financial transactions and make adjustments as
needed. Scorecard models deteriorate naturally when markets change; as a result, it is important
to utilize external resources to track the rate of deterioration in the model.
Instead of using credit ratings that are now over a month old, the organization could examine
recent banking transactions to spot potential pre-delinquency problems and re-marketing
openings.
Utilizing machine learning and AI helps to compare older scorecard models to ones built with
cutting-edge tech by conducting champion-challenger trials.
FedEx needs to protect the finances against fraud. In times of economic instability, fraud and
other forms of financial crime tend to rise. The organization need to make sure that they have the
most up-to-date information and tools at disposal in the battle against fraud.
Apply cutting-edge programing tools helps is one of the beat practices for managing credit risk.
In order to evaluate risk, the organization should safeguard its portfolio, and approve only the
most qualified borrowers, the organization also need a decisioning tool like GDS Link to handle
the whole borrower lifecycle.

In the vast majority of situations, a combination of FRMs and a minimum of three distinct risk
avoidance strategies are utilized. The first step in avoiding expensive financial judgments that
were either erroneous or wasteful is to standardize the relevant processes, contracts, and
procedures. This can be accomplished with relative ease by employing a method that has been
standardized. Building portfolios with a wider variety of borrowers, which makes them less
susceptible to being wiped out by a single event of loss, is another alternative that should be
taken into consideration (Gieseet al., 2019). As part of the third phase, employees will enter into
contracts with management that stipulate the terms under which they will be held accountable for
their conduct. In order to reduce the amount of risk that an organization is exposed to, it is
essential to get rid of or take responsibility for any hazards that the financial service that is being
offered does not absolutely require.
In order to guarantee that decisions regarding credit are made in a manner that is consistent and
that the aggregate reporting of financial risk exposure that follows is meaningful, Akomea-
Frimpong, Jin and Osei-Kyei(2020), stated various investment opportunities need to be subjected
to the same evaluation and rating system. In order to achieve this objective, there needs to be a

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high level of consistency not just in the processes, but also in the documentation. As a result of
these efforts to standardize, reports on credit portfolios have been established. These reports
offer essential information on how much the specific credit portfolio of a firm matters when it
comes to the company's ability to maintain its creditworthiness over the long run. In a rating
system where there is just one numerical value assigned to each loan, the underlying
creditworthiness rating of each loan is the same and is the same for all loans (Yang, Wang and
Ren, 2019.).
While some financial institutions favor a dual system, others argue that it confuses the issue of
recovery by breaking the borrower's connection to the facility. In certain circumstances, financial
organizationsfavor a dual system (Korol and Poltorak, 2018). According to Rehman and Anwar
(2019), a single or dual grading system provides some piece of mind to the credit committee
regarding the quality of the loan assets at any given time. Training and apprenticeship programs
for new loan officers can be used to familiarize them with the rating system used by the bank,
which will allow for the standardization of loan ratings. As the example demonstrates, the
financial institution is able to offer a report at any time on the quality of the loan portfolio it
maintains, taking into consideration these criteria. According to Oloboet al. (2021), all types of
receivables, including as loans, leasing and commitment agreements, and derivatives, are
reported using the same format. This reporting mechanism is intended to present senior
management with a comprehensive picture of the company's credit quality on a monthly basis.
This is contingent upon the rules being adhered to, of course. During the time that elapses
between reporting periods, new loans might be added to or removed from the system, and the
ratings that were previously assigned to particular loans might have been revised
(Sathyamoorthiet al., 2020). The normal amount of interest that is paid back on loans is the first
of these considerations. There are two things that can cause a change in the quality of a credit
report: the payback of debts and the taking out of new loans.

1.5 Financial risk management system and financial performance.

A company's ability to effectively manage financial risk is essential to its long-term viability and
profitability. One of the most important components in any risk management system is a series of
processes that must be repeated frequently (Ahmed et al., 2021). Communication, monitoring,
and hazard treatment are all necessary components of an effective risk management system.

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Businesses can maximize their profits and minimize their losses by employing this method. The
framework for financial risk management (FRM) includes eight interrelated components,
including the internal environment, objectives, events, risks, responses, and controls. This
framework ties together strategic, operational, reporting, and compliance objectives. Investors
must have a framework in place for effectively managing risk. Banks invested heavily in risk
management systems in the 1990s, which reduced volatility in earnings and losses during the
2001 recession. Risk indicators like leverage and earnings volatility were found to be linked in
studies looking at risk management (Lelgo and Obwogi, 2018). As a precaution, financial
institutions need to be cautious in their risk management practices. Banks' operations and
financial success are heavily influenced by risk management measures, according to the findings
of researchers. Two of the risk management measures that had an immediate impact on financial
performance were risk management policies and the implementation of risk management into
organizational objectives.
1.6 Research Rationale
This research can help the readers to gain an understanding of the various financial risks that can
slow a business's growth. Due to market volatility, changing market demand, inflammation and
various external factors such as political influence, legal policies and others various businesses
faces financial risks such as credit risk. FedEx is one such organization that has encountered with
various credit risks. Likewise, this research shall help to understand the types of financial risk
specially the credit risk and how firms like FedEx can overcome the risk and improve their
financial performance. Thus, the study is also crucial to understanding the various financial
aspects of the company.
1.7 Aims and Objectives
The aim of this research is to examine the financial risk of FedEx and their impact on the
company’s financial performance.
Objectives
● To discuss various financial risks that can affect the business operations of a company.
● To examine financial risk management practices adopted by FedEx.
● To analyze the financial performance of FedEx over the last 10 years
● To provide recommendations on how financial performance of FedEx can be improved
through more effective financial risk management practices.

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1.8 Research Questions
● What are financial risks and how can they affect a business?
● What are financial risk management practices employed by FedEx?
● How effective are financial risk management practices employed by FedEx in term of
financial performance?
● How can the financial risk management practices be improved?
1.9 Methodology
A variety of different methods will be used by the author to gather the information that will be
used in this work. Secondary sources will be used for data collection. Secondary data shall help
to understand the views of different authors regarding the financial risks thus, has been selected
as the method of this research. The method helps to gather wide knowledge regarding a selected
topic thus, shall help to understand the negative effects of financial risks and how they can
negatively impact a company’s position in the market. The data will also help the author to
understand the financial risks to which the company FedEx is vulnerable. Secondary data will be
used by the author to gather information from the research that has been conducted by other
researchers on the same topic. Several ethical considerations will also be undertaken by the
author while completing the work on the topic. All information that will be taken from other
researchers' work will be provided with proper credits. None of the work will also be copied
from other works and the researcher will only implement ideas from other researchers.
1.10 Synopsis of the Chapters
The whole dissertation will be divided into various parts. Each of the chapters will have its
significance and different areas will be covered in each chapter. The first chapter of this research
work will be the introduction. The second chapter of the dissertation is the literature review. The
third chapter will be data and methodology where the methods that will be used by the author to
collect data on the given topic will be thoroughly discussed. The result, analysis, and discussion
chapter will contain detailed discussion and analysis on the crucial findings that will be found by
the author during the research. The dissertation will end with a conclusion where all the
important points of the whole research will be summarized by the author.

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 Figure 3: Showing the synopsis of the chapter
Source: (Developed by the learner)
2.0. Literature Review
2.1. Understanding the Types of Financial Risks

In general, financial performance is the extent to which financial goals are being or have been
met, making it a crucial part of economics risk administration. The phrase refers to the method
used to put a dollar value on the outcomes of FedEx decisions and actions. It is a metric for
assessing the company's financial well-being over time, and it may be leveraged for comparative
purposes between businesses operating in the same industry, or across industries and sectors as a
whole. 

According to Akomea-Frimpong et al., (2020), the financial profitability study will be crucial for
long-term investors since profitability is the capacity to produce profits relative to sales, total
assets, and capital itself. A company's capacity to turn a profit is a key indicator of its long-term
viability, making it an essential metric for ensuring the company's continued existence.
Consequently, businesses always strive to increase their profitability, since a company's success
is more accurately reflected by its degree of profitability.

The health of a corporation may be gauged by its financial results. It gives an idea of the
company's current financial situation and the quality of management, as well as its prospects for
the future (including the growth of its operations and earnings and the performance of its stock
price).

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FedEx's bottom line in the US is crucial to the company's continued existence. Belás et al.,
(2018) states that in addition to facilitating expansion, the organization’s financial success is a
magnet for potential investors, lenders, and consumers; the organization’s capacity to reduce its
debt load and satisfy its working capital requirements both increases when it is profitable. That is
to say, making a profit is the holy grail of enterprise. AHMED et al., (2021) states that investors
may gauge FedEx’s future success or failure based on its profit margin. Any firm worth its salt
will place a premium on turning a profit in its strategic strategy. Businesses that are successful
are able to do so because their owners are able to both reinvest in the company and draw a salary
from the company's revenues. A business cannot stay in market without making money. The
organization may utilize its profits as capital to get through tough times. Therefore, the
organization’s profitability is crucial to its overall success.

Figure 4: Financial status of the firm FedEx

Source: (Belas et al., 2018)

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Profitability put another way, is a measure of how well an enterprise uses its resources. Expenses
minus profits equal profitability. A higher ratio indicates more profitability. When profits drop, it
is a hint that the business may need some efficiency tweaks. Businesses do better when they can
make a profit. A low ratio indicates that the firm has to make some adjustments. Various
methods exist, such as improved management, to increase the ratio.

Liquidity, leverage, firm size and market share position are some of the factors that affect the
financial performance of FedEx in the US. 

The firm's liquidity, or its capacity to satisfy debt commitments using obtainable money and
existing possessions that may be promptly converted into cash, is a key performance indicator.
According to Jokhadze, V. and Schmidt (2020)When the firm uses debt financing of its assets in
its quest of better financial performance, this increases the company's leverage, which is
measured by the ratio of total obligations to total possessions. Leverage is seen by equity
investors as a substitute for residual claims, which may be used to improve financial
performance. According to Cai (2018), firms’ effectiveness and the examination revealed that
one of the tactical foundations of productivity was the scope of the commercial firm, which
completely influenced and played an imperative part in opening streams of currency arrivals and
presentation in general. It was the company's resources that determined how effective it was as a
whole, whether that meant capturing a substantial part of the market or some other measure of
success, when a company's resources or goods are seen as superior to those of its competitors,
the company's market share increases relative to those of its rivals. The company's competitive
advantage and financial success (in the form of profitability) are both greatly influenced by the
quality of its goods.

2.2 Types of Financial Risks and its impact on financial performance

Credit Risks
As stated by Yang, Wang, and Ren (2019), sometimes, companies provide capital to their
partners and other small businesses. Korol and Poltorak (2018), mention that credit risk can be
analyzed by companies in various ways. Usually, a five Cs framework is used by the companies
to determine the credit risk before providing a loan to an individual. Managing credit risk aids in
the development of systemic answers for the banking industry that boost efficiency. Radical,

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distant-exchange, marketplace, interest-degree, acclaim, operational, and liquidity risks are just
some of the many that may be identified by financial professionals. Identifying and
comprehending credit risk at the individual, customer, and portfolio levels is essential for
successful credit risk management. According to Elcheikh, A.M. and Nobanee (2019), FedEx try
to get a holistic view of their risk profiles, but information is generally siloed. It is impossible for
the organization to determine whether their capital reserves sufficiently represent risks or if their
loan loss reserves cover anticipated short-term credit losses without conducting a comprehensive
risk assessment. Giese et al., (2019) states that several organizations with vulnerabilities are easy
targets for regulators and investors, and may suffer devastating losses as a result. Implementing a
combined, measureable recognition risk explanation is crucial for lowering loan loss rates and
making sure capital buffers are reflective of the risk profile. With this method, FedEx in the US
may rapidly implement basic portfolio metrics. Moreover, it should provide a way to upgrade to
more advanced credit risk management techniques in the future if and when they become
necessary. Better model management throughout the entire modeling life cycle, Real-time
scoring and limits monitoring, Robust stress-testing capabilities, Data visualization capabilities,
and business intelligence tools that get relevant evidence into the hands of the organization.

The five Cs frameworks contains the following parts credit history, capacity to repay, capital, the
loan's conditions, and associated collateral. The benefit of using the framework is it help identify
the aspects that are most important to the success and the risks the organization faces from the
surrounding environment. Each of these parts focuses on different aspects that help the company
to understand the ability of the individuals to repay the loan amount. The parts are briefly
discussed below.
Capacity
This is the first of the 5Cs of credit risk. This is the process that can be used by FedEx to
understand the ability of the individual that is receiving the loan. The company also needs to
thoroughly analyze the business of the individual and their past credit reports. According to
Kharlanov et al. (2022), following this part properly can help FedEx to avoid some major
financial risks and get back the provided loan amount with interest in a safe manner.
Capital
As opined by Wang, Yu, and Wang (2019), large companies need to look at the capital that the

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Lending company holds. The amount of capital that is held by the lending company can help the
Lender company to determine whether the company is capable of payback the loan amount.
FedEx needs to pay a lot of focus on this aspect since providing loans to their businesses without
looking at their capital base can be quite risky and can put the company at various financial risks.
Collateral
Miller (2018), describes collateral as an alternative way for companies to repay the loan amount.
Sometimes companies fail to repay the loan amount within the given period. In such cases, assets
such as machinery and real estate are used to pay the loan amount to the lender company. This
means FedEx needs to look at the assets that the company which is receiving the loan holds and
should also determine their cost if the company fails to pay the loan amount on time. This is a
great method to eliminate financial risks since the assets acquired by FedEx from other
companies can be sold, hence putting the amount earned in the company's account.
Conditions
Certain conditions need to be kept in mind by businesses before receiving a loan from an
organization. One of the main aspects of this part of the fice Cs includes determining the current
performance of the company. FedEx needs to thoroughly analyze whether the company that is
receiving the company is conducting its business operations successfully and the position of the
market that it currently holds. Elcheikh and Nobanee (2019) recommend that companies should
avoid providing loans to other companies that are showing poor performance in the market.
Character
The character of the business that is receiving the loan should also be observed by FedEx. The
character of a business includes crucial factors such as business background, credit history, etc.
This can help the company to determine how trustable the creditor is. Despite of a large
company, FedEx might need to obtain loans from other organizations to improve its business
practices. According to Sunchalin et al. (2019), the whole process of lending and receiving
money should be kept transparent to avoid any legal allegations.
Liquidity Risks
As stated by Mihaylov and Zurbruegg (2020), liquidity risk can be described as the risk that
companies face while payments of debts. Liquidity risk is faced by almost every company since
debts need to be taken from outside sources for various business operations. According to
Breitenstein, Nguyen, and Walther (2021), FedEx being a large company is always vulnerable to

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liquidity risks. When a company does not have enough money on hand, they run the danger of
being unable to pay its bills on time. Managing cash flow and liquidity risk effectively is
essential for any company that wants to avoid a liquidity crisis and the insolvency that comes
with it.
Market Risks
According to Jokhadze and Schmidt (2020), market risks are the risks that are associated with the
losses that a company can face in the market. Market risks also affect the overall performance of
a company in financial markets. FedEx needs to keep itself away from this type of risk because it
cannot be eliminated from diversification. The company can face market risks due to changes in
prices. Investment, economic expansion, and free trade all have a role in the bank's capacity to
carry out its mission of promoting financial stability, which in turn affects the bank's day-to-day
activities. The danger of having assets or obligations decline in value as a result of changes in
market pricing is known as market risk.

Figure 5: Showing types of Financial Risk

Source: (Jokhadze and Schmidt, 2020)
2.3. Understanding Financial Risk Management Practices
According to Kharlanov et al. (2022), financial risk management practices are the activities that
are undertaken by companies to overcome the financial risks that can harm a company’s business

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operations. In order to improve its financial practices, every company must make some
investments. These investments come with certain financial risks that if not fixed at the right
time can cause tremendous losses for the companies. Some of the major financial risks that can
negatively impact an organization’s financial performance are credit risks, liquidity risks, and
market risks. Implementing proper financial risk management practices can help companies to
overcome these risks. Below is some of the most effective financial risk analysis.
Regression Analysis
According to Korol and Poltorak (2018), regression analysis is a statistical method that is used
by companies to understand the changes between different variables. This is a useful tool to
expose the characteristics of the variables that are found in the financial databases of a company.
For example, during times when the rate of interest decreases or increases, the investment
managers uses this technique to find out the changes in cash flow. However, it has been found
that in order to use this method of financial risk management, companies must gather appropriate
data regarding the various investments.
According to Cai, (2018), benefits of regression analysis are that it works well irrespective of the
dataset size and gives accurate data regarding the involved features. Thus, it helps to understand
the large financial data of FedEx related to the liquidity debt, equity, assets, cash flow and others,
and helps to trace the credit risk and liquidity risk within the firms such as in FedEx. However,
the limitations are that regression relation can change over time and the issue of parameter
instability can occur. Thus, invalid financial risk can be predicted as a result of parameter
instability.

Security Analysis
As stated by Lelgo and Obwogi (2018), security analysis is the process that is used by
organizations to analyze various financial tools such as equities, debts, etc. Security analysis is
further dived into fundamental analysis that examines essential business factors such as financial
statements. Technical analysis is another part of security analysis that focuses on analyzing
momentum and price trends. Overall, the function of security analysis is to analyze the risks that
revolve around the financial securities of an organization.
According to Belas et al., (2018), the benefits of security analysis is that it helps to measure and
calculate the value of assets and to understand the effect of market fluctuations on the tradable

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financial instruments called securities. Thus, helps to identify the market risks. However, the
limitation is that it always rely on historical data, as market data are changing continuously thus,
it becomes difficult to reflect perfect result. Moreover, interpreting the data via charts are
difficult.

Value at Risk (VaR)

As opined by Mihaylov and Zurbruegg (2020), Value at Risk (VaR) is a popular method of
financial risk management that help firms to determine the percentage of loss that they can face
in an investment. This makes VaR a crucial method that must be undertaken by organizations
before making an investment. In this method, the risk is generally identified in percentage. The
data gathered from VaR can be used by companies to determine whether it has sufficient capital
to recover from the investment losses. A VaR percentage higher than the company’s capital
capability indicates that it has to sell some of its assets to recover from the losses.
According to Lelgo and Obwogi, (2018), value at risk has the advantage that it relies on input of
managers to frame the scenario and thus, is most realistic exposure and is extremely useful in
measuring joint movements in financial variables. Thus, helps to identify the operational
financial risks. However, the disadvantages are that it might not be well suited with large
complex portfolios and are limited to events.

Scenario Analysis
According to Miller (2018), scenario analysis is a risk management tool used by companies to
quantify the financial risks. ‘What if’ analysis, sensitivity test, and stress tests are two of the
most crucial components of scenario analysis. In this method, financial managers often ask
themselves certain questions relating to the current financial position of the company. Questions
such as ‘what if an important client leaves the company tomorrow?’ are also asked. Scenario
analysis helps financial managers to answer these questions which are further used to identify
future financial risks.
According to Regman and Anwar, (2019), the advantage of scenario analysis is that it is very
simple to perform and thus helps identify every type of financial risks easily and the
disadvantage is that probability distribution is difficult to estimate and small number of scenarios
is unrealistic.

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Credit risk management strategies that can be implemented
According to Rehman and Anwar, (2019), FedEx faces various financial risks however; the
incidence of credit risk is highest for the company. Thus, the firm has implemented various
credit risk management tactics within the firm.

The probability of loss due to the failure of a customer to make payments on any credit is known
as credit risk. Credit risk management helps in overcoming such risks by the practice of
mitigating any losses that might happen by properly understanding the adequacy of a customer's
capital or creditworthiness. Besides the customer's creditworthiness, adequacy of the loan loss
reserves at any time is also understood for credit risk management. This process has been a
challenge for financial institutions for a long time. It was the global financial and the credit
crunch that happened during it which made the practice of credit risk management to come into
the spotlight. As the risk of credit increased among companies and financial institutions, it
became more important for credit risk management to be practiced and implemented (Abbasi et
al., 2019). 

Most of the suppliers and manufactures perform sales of their goods and services on the basis of
business credit. It is possible that a customer buys any product or service from companies like
FedEx but then they are unable to pay making the company suffer losses. It is more common in
the case of big multinational companies like FedEx whose customer base is quite broad. Credit
risks can lead to substantial losses and therefore the implementation of credit risk management is
an important element in the overall financial arena of a company. Business credit is an important
tool for companies in matters of finance when a company chooses to buy directly from the
supplier. 

Risk management is an unavoidable element of financial processes and the best strategy which
FedEx can employ first and foremost is to follow all the steps of risk management in a proper
manner. Suppliers usually ask their customers to provide information regarding their business so
that the company can assess the creditworthiness (Belas et al., 2018). The primary strategy which

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FedEx can employ is to use some key indicators regarding the level of risk while extending
credit. Some key indicators have been mentioned below. 
Trade referencing: Vendors, banks and landlords can ideally report their experiences regarding
payment from a particular individual to business credit bureaus. This trade reference highlights
the characteristics of a defaulter such as late payments, someone who has been compulsively late
in managing their previous business debt. Trade reference which is a part of a business credit
bureau's credit report can be helpful for FedEx and if the company is able to acquire that
information, then it would become easier for it to decide the creditworthiness of a customer. 
Bank and financial information: Bank and financial information such as the status of relationship
between the customer and bank can easily be acquired by FedEx. This information can help the
company to decide the creditworthiness of a customer and could prove to be a simple and easy
yet effective strategy in the overall process of credit risk management. The relationship between
the bank and customer portrays all the information such as bad debt. 
Credit scores and rating: Bank and business credit bureau composes a credit score by comparing
the performance of the company to similarly different companies in the industry and region. The
usage of predictive analytics helps ascertain the information if a company is performing well or
is underperforming and is on the verge of a financial risk. FedEx can assess their internal
financial condition to see if they are at a position to extend credit to their customers on a
significant scale or not (Bussman et al., 2021). Assessing the financial history is important when
it comes to business credit risk management but also the financial condition of the company and
whether it is capable itself is an important aspect to look into. 
Credit risk management in business is important to make sound decisions while lending and
protecting the flow of cash. It is impossible to eliminate all risks but credit risk management can
help businesses avoid bad debts and outstanding defaults. 
The 3 specific credit risk management strategies which FedEx can employ: 
1. Risk based pricing: In this strategy, the lender charges a higher rate of interest to the
borrower where they see a risk of default in the borrower through the assessment of their
financial history. It is the customer's financial history which becomes the bone of
contention in this regard. In this credit risk management strategy the rate of interest
differs in the case of different borrowers on the basis of their ability to pay back the loan.
The chances of risk naturally increases when the borrower may have a defaulter history

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 (Disemadi, 2019). The borrower with a good history is charged lesser interest than a
borrower with bad financial history in terms of debt or finance. 
2. Insertion of covenants: It can happen if the lender inserts certain provisions or a debt
covenant in the agreement for the loan before disbursing the money to the borrower. Any
breach within the covenant would naturally trigger a warning towards the borrower. The
warning signifies that there is a high potential of default in the case of that particular
borrower and strict actions must be taken before the problem worsens with the passage of
more days. FedEx can use this technique by inserting covenants in their agreement of
credit to any customer which would allow them to acquire penalty in case of a failure. 
3. Periodic MIS reporting: In this strategy the lender asks to see the financial statements of
the borrower for a predetermined analysis of the financial history of the borrower.
Financial statement is an important tool for understanding the financial history of an
individual or entity. The monthly MIS helps in tracking the cash flow of the borrower and
helps to determine if the borrower is financially independent and would be able to pay
back the credit loan or not. FedEx can employ a special individual for MIS reporting
because it is a procedure which requires a specific skill and a high level of understanding
(Elcheik and Nobanee, 2019). 

Research gap
There are types of financial risk and they have immense impact on the market as well as on the
business. However, the study explores literature regarding only the credit risk and its impact on
the financial performance of an US based organization FedEx. Thus, there is a literature gap
related to discussion other types of financial risks and their impact on financial performance in
depth.

Chapter 3: Data and Methodology

3.1 Introduction
In the academic domain, research holds a crucial prominence as it foregrounds a particular
problem or concern to carry out an in-depth investigation in a succinct manner. To put it simply,
research is a detailed process of discovering knowledge, and contributing to the formation of
data collection and analysis. This particular research revolves around the financial risk

20
management practices, aimed at particularly exploring the case study of FedEx. Pandey and
Pandey (2021) considered methodology to be the study of viable research methods and
techniques that can aid in developing new knowledge and consolidate the inferences, derived
from varied sources. Methodology in essence seeks to detail approaches of a researcher, while
valid outputs, aligned with aim and objectives are also ensured. Cr (2020) discovered that a
methodology contains in itself five principal components such as, "logic of inquiry", "research
settings", "methods of data collection", "methods of data analysis" and "ethical issues". The
present chapter is also determined to incorporate all these five stated elements into the research
for producing better outcomes in the long run. In light of the above points, the methodology can
be presented as a science that leads research towards carrying out research in a logical yet
systematic manner. Research onion is going to be deployed in the course of this research to
design a pertinent methodology for the overall study.
3.2 Research Onion

Figure 3.1: Research Onion

(Source: As inspired by Melnikovas, 2018)
The methodology can be defined as one of the most pivotal segments of research conducive to
sound decision making, leading to yielding profitable outputs. Melnikovas (2018) held the belief
that the research onion developed by Saunders intends to describe the varied decisions that
individuals are required to make at the different stages of developing a methodology. Peeling the
onion from the outer layer to the inner ones reveals different essential components, ranging from

21
the philosophical level to the tactical level which is quite pragmatic in nature. This particular
pattern also mimics the general structure for the formulation of a sound chapter of methodology.
Sinha, Clarke, and Farquharson (2018) claimed that Saunders' research onion is not perfect in
nature, while it is quite useful to think holistically and to strategically come up with a proper
format of methodology. The research onion consists of 6 layers and peeling one layer at a time
pinpoints the specific standpoint of the researchers. Research philosophy is located at the outer
part of the methodology and its different types are chosen by the scholars and researchers as per
the type of their assumptions. In the second outermost layer of the research onion, there remains
a segment known as research approaches, and choosing an approach, the movement of data is
determined. Strategies, choices, time horizons, and techniques are traced out leading to the
finalization of orderly decision making.
3.3 Research Philosophy

Figure 3.2: Research Philosophies

(Source: As inspired by Žukauskas Vveinhardt and Andriukaitienė, 2018)
In the context of designing a research methodology, philosophy plays a vital role in carrying out
a sound experiment, coupled with other techniques. Žukauskas Vveinhardt and Andriukaitienė
(2018) clarified that research philosophy is a set of beliefs upon which research is built. In

22
simple terms, research philosophy is all about the worldviews that keep differing from one
individual to another. From the perspective of positioning, research philosophical tenets are
segregated into three divisions, such as ontological, epistemological, and axiological
assumptions. As per the view of Al-Ababneh (2020), ontological assumption revolves around the
nature of reality and it is related to a general question of whether the entities in the societal
domain are to be perceived as subjective or objective. On the contrary, epistemology dictates the
researchers to frame the research procedures in a particular manner for discovering knowledge.
In this research, the concerned investigator has sought to choose subjective knowledge over the
objective standpoint to support pertinent claims. For instance, in the context of financial risk
management practices and financial performance, the deployment of an objective standpoint
might have only portrayed an external view. This financial risk management practices-related
research paper is more contingent on the actions undertaken by the social actors. Therefore,
encompassing the subjective view of ontological assumption, it has become possible for the
researcher to illustrate the core discussion in a descriptive manner. From the perspective of the
nature of knowledge, there are four prototypes of research philosophy such as, "positivism",
"interpretivism", "realism" and "pragmatism". Taking into account these four doctrines of
philosophy, this study has chosen the interpretivism worldview as it has a close relationship with
the realities, constructed socially. In light of the socio-cultural backdrop, the thoughts and
different opinions of the individuals are encompassed to come up with systemic findings.
3.4 Research Approach

23
 Figure 3.3: Research Approach
(Source: As inspired by Maarouf, 2019)
Choice of an appropriate approach acts like a plan about how to proceed with a particular task.
Maarouf (2019) denoted the research approach as a plan linked with the nature of data, the
pattern of obtaining data, and the manner of analyzing it. However, the orientation of the
research approach specifically on data collection, analysis, and final interpretation, has its
dependent on the nature of the research problems. There are three prominent research approaches
in the juncture of academic research, such as, "deductive", "inductive" and "abductive".
Sternberg, Guyote, and Turner (2021) mentioned that deductive reasoning tests the validity of
the assumptions, and hence the existing theoretical ideas are investigated. Alternatively,
inductive reasoning appears to be quite different from deductive reasoning as it contributes
largely to the emergence of new theories. The deductive approach demands the conclusion of the
premise to be true, while inductive reasoning's main strength lies in generating untested
conclusions. This particular study has its main area of discussion regarding financial risk
management practices with special emphasis on the case study of FedEx. In this dissertation,
interrelated yet interdependent variables are explored in this study and they are directed toward
fixing the environmental risk factors. Grounded on such attributes, this research has embraced
"inductive reasoning" as in this particular manner, this research has attained the privilege of
inclining towards specific knowledge to shifting towards generalized premises. Sternberg,
Guyote, and Turner (2021) stated that the abductive approach is different from deductive and
inductive reasoning as it is devoted to expounding incomplete observations. This study averting
such scopes has chosen to formulate new theories for supporting the financial risk management
issues and hurdles, forming the core portion of the research work.
3.5 Research Strategy
Strategy is crucial for research work to endow the thought process of researchers with a
systematic direction by entailing a step by step guide into account. Oliva (2019) depicted that
strategy plays an indispensable role as far as the research is concerned as in this process,
researchers are bound to undergo consequent steps, ranging from planning, and execution to the
monitoring of the entire area of knowledge. This author added that having a strategy in research
is undoubtedly vital as it is capable of resolving all the existing issues, attached with a decision
making mechanism. According to Mitchell and Education (2018), in research onion, there are six

24
prominent research strategies that allow researchers to dive deep into the existing premises, such
as, "experimental research strategy", "action research", "case study research", "grounded theory",
"ethnography" and "archival research". In light of this statement, it can be assumed that based on
the nature of data and research problems, this study has introduced an exploratory strategy. As
analyzed by Bohari et al. (2019), an exploratory research strategy is a detailed yet in-depth study
on research questions that are not taken into account beforehand. For instance, the concerned
dissertation has covered mainly the practices linked with FedEx, an American conglomerate
organization, that specializes in the gamuts like transportation and e-commerce. The
understanding of the real-life issues in a real-life setting helps the researcher to have a grasp on
the generalized knowledge. On the other hand, the new insights regarding financial performance
and financial risk management practices.
Hancock, Algozzine, and Lim (2021) pointed out that case study researches are usually
qualitative in nature and accompany the interpretive philosophical doctrines. However, the case
study strategy has not been introduced in the study as the focus is not centralized on a particular
subject matter, individual or institution. In support of the choice of exploratory strategy, there are
several reasons to be encompassed in this dissertation. For instance, exploratory study is the least
expensive in nature, while one of the fastest means to discover the major theoretical tenets.
Therefore, this particular strategic standpoint has safeguarded the investigator from getting
entangled in the web of difficulties, stemming from financial stagnancy.
3.6 Research Choice
After research strategy, research choice holds a prominent position in the methodology section.
Research choice is mainly about being a little more specific and is concerned about deciding the
number of data types to be incorporated in research work. Dewasiri, Weerakoon, and Azeez
(2018) opined that there are three main research choices such as mono method, mixed and multi
method. Among three main premises of research choices, the mono method stands for the choice
of either one of a pattern, qualitative or quantitative. As highlighted by Harrison, Reilly, and
Creswell (2020), mixed method research integrates two contrary data elements qualitative and
quantitative in terms of answering the research questions. In addition to that, multi-method
research choice refers to a procedure in which a wider range of data approaches is considered.
For instance, in the case of qualitative study, besides the thematic method, the content analysis
method is also taken into account for the pragmatic solutions to the research problems. This

25
study has only one constraint related to the discovery of the relationship between financial risk
management and financial performance and owing to that mono-method has been taken into
account. From this particular premise, it can be outlined that mono-method choice has aided this
investigator to be exempt from indulging in the practices of employing multiple data sets. Thus,
the mono method appears to be quite beneficial as it reduces the diversion of the scholars or
researchers and makes the data analysis procedure easier. On the other hand, due to a sole
preoccupation, there remains dormant scope for undergoing knowledge stagnation.
3.8 Research Design
Each research work has its separate design or framework that can set it apart from that of the
others and at the same time it characterizes the chosen set of data. Sileyew (2019) noted that
research design refers to a systematic arrangement of conditions that can pave a path for the
organization of research findings. This author also classified the research designs into five major
divisions like "correlational design", "diagnostic design", "explanatory design", "experimental
design" and "descriptive design". The viable choice of research design lets the investigators or
researchers pursue their quest towards an unknown path but in a systematic direction. Linnér,
Taha, and Carlsson (2018) posited that descriptive research design permits the researcher or
scholar to describe a particular situation or case in depth. In keeping pace with the research
materials, the research design is framed entirely based on a theoretical context; while a wide
range of research approaches are strategically utilized. Linnér, Taha, and Carlsson (2018)
clarified that, unlike experimental design, the descriptive design does not manipulate or alter any
variables within the research work, instead just observes them. Correlational design on the
contrary pursues magnitude or internal link between two of more than two variables. Descriptive
design is one of the most general forms of research design and guarantees legitimate outputs in
the long run. This research based on its qualitative preoccupation has embraced descriptive
design as the research has made attempts of expounding or describing the phenomenon related to
the exploration of the relationship between financial performance and financial risk management
practices.
Apart from declaring the positioning and inclination within the systematic research practices, the
clear benefits of using research design can be mentioned. For instance, the research design is
imperative to indulge in beneficial practices as it assists in providing a profound understanding

26
related to the subject matter. Despite this advantage, the complex issues are effortlessly resolved
via critical analysis and evaluation of critical knowledge areas.
3.9 Research Techniques and Procedures
3.9.1 Data Collection
Research data stands for a collection of files and records, providing support to the research
project such as documents, articles, images, videos, and so on. Barrett and Twycross (2018)
postulated that data materials are conducive to the formulation of new insights and it steers the
journey towards the advancement of the findings. Data in research studies take multiple forms
when it comes to the utilization of resources, beginning with numerical data, and survey
questionnaires. Current research work is going to take into consideration the qualitative abstract
ideas. Research data in this context can be presented as raw materials that are neither purified nor
modeled in a proper manner. Li, Higgins, and Deeks (2019) divided data collection into two
types: primary data collection and secondary data collection. Primary data means the first-hand
resources gathered by the researcher himself independently and simultaneously it mitigates the
curiosity of the investigator directly. There are multiple methods available in the domain of
research data collection, such as surveys, personal interviews, etc. Johhson and Sylvia (2018)
presented secondary data collection as a method to gather insights from somebody other than the
actual user. The government publications, journals or articles, websites, and internal records are
gathered as secondary sources of data collection. This concerned researcher has run out of
financial resources and it has been dictated to exempt them from collecting primary data, which
is expensive in nature. Conducting primary research is a more time-consuming task than
secondary data collection, which is readily available. Authentic scholarly articles from Google
Scholar are obtained and they are inserted directly into research papers for resolving research
questions.
3.9.2 Search Strategy
The search strategy is a logical organization of keywords to get access to the relevant data
materials (Eriksen and Frandsen, 2018). Instead of sampling, this research has strategically shed
light on the search strategy as secondary data is the main resource. For instance, for data analysis
and discussion, authentic scholarly items are included in the research procedure and Google
Scholar is used for that purpose. The major keywords for this research include "financial risk",
"risk management", "financial performance", "credit management", "micro-financing" and

27
"liquidity risk". These mentioned keywords are introduced with a higher standard of clarity to
derive the most relevant outputs. Besides the keywords and key phrases, there remains a wide
range of attributes like boolean operators "and", "or" and "not" to specifically narrow down the
area of data collection. For instance, mentioned keywords have guided this investigator to
retrieve the most valuable data items. Eriksen and Frandsen, 2018) stated that based on databases
and their types, techniques like truncation, adjacency searching, and wildcards are used. Apart
from keywords and phrases, this research has also made use of subject headings and enhanced
the level of accuracy in the research procedure.
3.9.3 Inclusion and Exclusion Criteria

Inclusion Criteria Exclusion Criteria

The journals and articles from 2018 to the The journals or articles that belong to prior
current year are included in the study to 2018 are not capitalized as they might prove
maintain authenticity. to be obsolete and might become irrelevant
in the current context.

The articles or data items that have Data items or websites that are either pirated
publication years and names of authors are or have anonymous authors are discarded
considered to be eligible for this research from the research owing to issues related to
paper. validity.

Data items that allow free access to the Data items that are seeking paid access are
researchers are included as they have proven obliterated to avoid the chances of academic
to be cost-effective. misconduct.

Table 3.1: Inclusion and Exclusion Criteria

(Source: Developed by Author)
Inclusion and exclusion criteria are the principles or set of regulations that are mentioned in
research activities to inform the readers and academicians about rational and authentic research
practices. Lopes et al. (2020) added that inclusion and exclusion criteria put forward the
characteristics that participants or subjects must have for participating in the research. Data
before 2018 are discarded strictly as the researcher has anticipated that the presence of these

28
items might lead the researcher to either compromise with the quality of the dissertation or might
give rise to complications. Publication year or author's name carries the real identity of research
articles and journals and missing such details might render the universities discard research
based on existing discrepancies. Free access journals can be used or strategically capitalized in
research work as they shed financial burdens. On a contradictory note, paid subscription based
journals are obliterated which are endowed with possibilities of giving rise to academic
misconduct related offenses against the researcher. Even the research papers or data materials
that are not composed in languages other than English are completely eliminated. Alongside, the
papers written in English language are included for better clarity as well as to make them
understandable for the readers and academicians.
3.10 Data Analysis
Data analysis is a major step after collection of data as it strengthens the claims of the
investigators and adds shape to existing data materials. Jackson and Bazeley (2019) pointed out
that data analysis reveals the purification, modelling, transformation and interpretation of raw
items, extracted from a source. In light of this statement, it can be claimed that data analysis is
responsible for day to day decision making and simultaneously it aids in segregating data into
smaller chunks. De Block and Vis (2019) emphasized that qualitative and quantitative data
analysis are two prominent yet prevalent types. This study focuses on the relationship between
financial performance and financial risk management practices, in light of the case study of
FedEx. As per that qualitative data analysis is going to be carried out in a descriptive manner to
investigate the relationship between two variables.
3.11 Ethical Considerations
Ethics are a set of dos and don'ts that are utilized in the research study to reveal the potential of
the author to stay loyal and truthful. Ethical considerations play an indispensable role in
determining research designs and moral practices. Ferreira and Serpa (2018) noted that five
major ethical standards include voluntary participation, anonymity, confidentiality, results in
communication, and the potential to cause harm. In this study, there is no ground for making
space for informed consent as primary data is not introduced, while the investigator has shown
adherence to "Copyright, Designs, and Patents Act, 1988 (c.48)" to prevent the acts of copyright
infringement related practices in the study. On the other hand, following Harvard rules, the
eminent authors are accredited for their contributions to the study indirectly.

29
4. Results, Analysis and Discussion
4.1. Results
All businesses, say Akomea-Frimpong, Jin, and Osei-Kyei (2020), need many monetary
exchanges. Their shareholders, vendors, partners, etc., are common sources of these monetary
transactions. Financial risks are often defined as unwelcome events or conditions that threaten to
disrupt financial transactions. Threats to a company's finances may have far-reaching and
negative effects on its operations. Avoiding the negative effects of these financial risks requires
prompt identification and resolution. For its speed and reliability, FedEx has gained a large
customer base worldwide.
These financial uncertainties pose a threat to the company's ability to operate normally and might
weaken its standing in the market. Credit risks, liquidity risks, and market risks will be the key
areas of study in this article. There are a variety of ways in which each risk might hurt the firm.
Below, we'll talk about the dangers in further depth.
According to Yang, Wang, and Ren (2019), enterprises may sometimes invest in their business
partners and other startups. The agreement stipulates a period of time during which the funds
must be repaid. In addition, the sum of money should be returned to the corporation with a
certain rate of interest. The danger that these people won't pay back the money they've borrowed
is known as credit risk. Credit risk poses several dangers to a business, including a reduction in
cash flow and an increase in collection expenses.
Companies incur liquidity risk while making loan payments, as explained by Mihaylov and
Zurbruegg (2020). Since virtually all businesses need to borrow money from outside investors in
order to run, liquidity risk is something that almost all companies must contend with. Many
businesses have been found to have borrowed money from other corporations in order to fund
their ventures. When a project fails, the firms involved are unable to repay their debts and face a
number of legal consequences.
Jokhadze and Schmidt (2020) define market risk as the possibility of financial loss due to market
forces. The total financial market performance of a corporation is also affected by market
hazards. Risk is multifaceted, and it cannot be mitigated simply by spreading assets around.
Recessions, fluctuations in exchange rates and interest rates, interest rate fluctuations, and
geopolitical unrest are all potential sources of these dangers. As a result of its interconnectedness

30
with other market elements, marketplace risk is also known as systemic risk. FedEx must avoid
this danger since it is not reducible via diversification.
Financial risk management procedures are the actions that businesses take to mitigate the effects
of financial risks on their operations, as defined by Kharlanov et al., (2022). Every business has
to put some money into enhancing its financial procedures. These investments are fraught with
financial perils that, if not mitigated in time, might result in catastrophic losses for their
respective businesses. Credit risks, liquidity risks, and market risks are all examples of
significant financial risks that might have a detrimental influence on an organization's financial
performance. Companies may mitigate their exposure to these dangers by adopting and
executing sound financial risk management policies. Several of the best methods for handling
financial risks are outlined here.
Regression analysis is a statistical technique used by businesses to examine the interrelationships
between a number of variables, as described by Korol and Poltorak (2018). The tool is helpful
since it reveals the properties of the variables included in a company's financial databases.
According to Lelgo and Obwogi (2018), businesses utilize a procedure known as security
analysis to evaluate investments like stocks, bonds, and other debt and equity instruments.
Fundamental analysis, a subset of security analysis, digs further by looking at key company
elements including financial statements. Security analysis has several sub-fields, one of which,
technical analysis, examines price and momentum movements. As a whole, security analysis is
used to assess potential threats to an organization's financial securities.
According to Mihaylov and Zurbruegg (2020), Value at Risk (VaR) is a well-liked approach to
managing financial risks that aids businesses in estimating the amount of potential loss
associated with an investment. Because of this, VaR is an essential technique that businesses
need to use before making investments. The risk is often expressed as a percentage when using
this technique. Miller (2018) explains that scenario analysis is a method used in risk management
to help businesses put a dollar value on potential negative outcomes. Two of the most important
parts of scenario analysis are the "what if" analysis, sensitivity test, and stress testing. In this
approach, CFOs and other financial executives ask themselves a series of questions about the
state of the company's finances.
Companies need a solid risk management strategy in place to protect themselves from potential
threats. It is important to tailor your risk management strategies to your organization's

31
quantitative nature and the quantitative approach its decision-makers take to risk management
frameworks. Some, in addition, ignore the connection between thorough risk management and
financial success in favor of concentrating on the qualitative discourse and mobilizations on
expert viewpoints.
Averting a financial disaster requires diligent attention to credit risk management. Despite its
complexity, credit risk management can be broken down into two distinct phases: measurement
and mitigation. The risk management instruments used to assess credit risk often take into
account the nature of the borrower and the reliability of the lending institution as two key factors.
Lenders are interested in a borrower's income (obligations), assets, other liabilities, and credit
history. As a general rule, a loan requires some kind of security or guarantee before it will be
approved. Due to the bigger sums that larger commercial customers borrow, the commercial
lending industry has become more complex. Therefore, it is important to do a thorough analysis
of the borrower's business quality in this case. It is just as important to study the borrower's
business sector. Successful credit risk management is essential to avoid sustaining monetary loss.
Credit risk refers to the possibility of financial loss as a result of a debtor's inability to meet their
contractual obligations to repay a loan. Credit risk management aids in coping with these threats
via the technique of limiting potential losses by assessing a bank's financial strength accurately.
In addition to the bank's capital, an understanding of the sufficiency of the loan loss reserves at
any moment is essential for effective credit risk management. For a long time, this procedure has
been a headache for banks. The global financial crisis and the subsequent credit crunch are
largely responsible for the increased visibility of credit risk management as a distinct field of
expertise. Credit risk management grew more crucial as businesses and banks were exposed to
greater credit dangers. Creditors have recently called for more openness across the whole debit
and credit financial system, requesting that banks provide all of the detailed information they
possess on clients in order to better manage and prevent credit risk.
Disruptions to firms' revenue and operating expenses due to commodity and fuel price volatility.
A company's ability to pay its bills is threatened by credit risk, liquidity risk, and refinancing
risk. Cost of shipping containers up and down as a result of supply and demand mismatches in
the container liner industry. Possible unfavorable shifts in interest rates and/or currency values.
For a sector that relies so heavily on outside funding, the consequences of inaccurately predicting
future capital needs may be severe.

32
4.2. Analysis
This section provides a summary of the empirical research that has been conducted on the topic
of credit risk management and its impact on financial results. Organizations need a solid and
comprehensive risk management strategy to protect themselves from potential dangers. The
analytical nature of the company and the quantitative approach used by the decision makers to
risk management models call for the implementation of specific risk management instruments.
Some, in addition, divert attention away from the connection between thorough risk management
and financial success in favor of a concentration on qualitative discourse and expert opinion
mobilization. The effect of credit risk indicators on performance and its framework is also
assessed. Most businesses would struggle to function without properly assessing and managing
their exposure to credit risk. There is a risk of non-performance since there is always the chance
that an agreement reached in good faith may not last. A company's goals might be jeopardized if
anything does not go according to plan. In a nutshell, credit risk occurs when Lenders take on
credit risk whenever they provide financing to a borrower. To ensure the system works well,
both lending and borrowing parties must be compensated. If this doesn't happen, the company
runs the danger of mismanaging the finances and structures of its employees. Here, we
investigate if there is a link between risk management and economic success. Otherwise, a
financial catastrophe is imminent unless credit risk is managed well. The many procedures
involved in credit risk management may be simplified into just two: measurement and
mitigation. Risk management instruments use criteria such as borrower profile and lender
reputation to provide a risk rating. The borrower's assets, other liabilities, income (obligations),
and credit history will all be considered by the lending institution.
As such, it is the first of the 5Cs that make up credit risk. FedEx may utilize this method to
assess a borrower's financial standing before extending credit. The corporation must do a
comprehensive evaluation of the individual's business and credit history. It will also aid the firm
in determining the most suitable loan amount for the company's needs and the duration for which
the loan should be granted. Following this section correctly may help FedEx avoid certain big
financial problems and ensure the safe repayment of the loan plus interest, as stated by
Kharlanov et al. (2022). Wang, Yu, and Wang (2019) argue that major corporations should
evaluate the lending institution's capital reserves before making any commitments. The lender

33
may gauge the borrower's ability to repay the loan based on the quantity of liquid assets it has on
hand.
Collateral is an alternate method for businesses to repay loan amounts, as described by Miller
(2018). In certain cases, businesses are unable to return their loan within the specified time
frame. In this scenario, the borrower uses collateral, such as a piece of equipment or a piece of
property, to repay the lender. That's why FedEx has to investigate the collateral the borrower has
and calculate the loss they'd suffer if they didn't repay the loan. Before applying for a loan from a
financial institution, enterprises must meet certain criteria. Determining the company's present
performance is a key component of this facet of the five Cs. FedEx has to investigate the
company's business operations and market standing to determine whether the acquisition will be
effective.
FedEx, despite its size, may seek outside funding in order to implement operational
improvements. Massive corporations often borrow money from smaller ones for a wide variety
of reasons. This is the most common kind of liquidity risk, which is concerned with whether or
not the organization will be able to meet its financial obligations. A firm's current ratio may be
used to gauge its funding liquidity risk, also known as cash flow liquidity risk. Liquidity risks in
the market, also known as asset liquidity risks, are the danger of an asset's inability to be sold
quickly. Businesses that are vulnerable to this threat are unable to recover from their
predicament. One scenario is when a company has assets but cannot sell them at a reasonable
price because of the state of the market. Businesses in this position are often compelled to sell off
their assets at a loss.
Market risks, as defined by Jokhadze and Schmidt (2020), pertain to potential financial losses for
a business. A company's total financial market performance is also impacted by market risks.
Diversification is useless because the risk is too complicated. Interest rate risk, as defined by Cai
(2018), is the danger posed by fluctuations in market interest rates. Changes in interest rates in
the market might expose a business to several dangers. Term structure risk, repricing risk, basis
risk, and options risk are a few examples of possible threats. One of the most widespread threats
to a company's operations is basis risk. This form of risk results from fluctuations in the value of
a security. There is both systematic and unsystematic volatility associated with equity prices.
Risks associated with fluctuations in the value of a currency relative to another are known as

34
foreign exchange hazards or currency risks. Commodity price risk refers to the possibility that
market conditions may shift as a direct result of changes in the value of a certain commodity.
Risk management is an inherent feature of financial operations and the greatest technique which
FedEx may apply first and foremost is to follow all the procedures of risk management in a
professional way. It is common practice for vendors to inquire about a client's firm in order to
determine the latter's creditworthiness. FedEx's main tactic is to utilize crucial indications about
the amount of risk while issuing credit. A few of the more telling signs are listed down below.
If a vendor, bank, or landlord has had payment issues with a customer, they may reference that
customer's history with the business credit bureau. The qualities of a defaulter, such as payment
delays, are highlighted in this industry reference. This person has a history of being chronically
late in handling commercial debt. FedEx might benefit from the information included in a
business credit bureau's trade reference section of a customer's credit report.
Banking and financial data: FedEx has easy access to banking and financial data, including
customer-bank relationship status. A basic and uncomplicated but effective method in credit risk
management, this data may assist the organization determine a customer's creditworthiness. All
data, including bad debt, is shown in the context of the relationship between the bank and the
consumer.
A credit score is generated by a bank or business credit agency by comparing the company's
performance to that of other businesses in the same industry and geographic area. Predictive
analytics is used to find out whether a business is doing well or if it is underperforming and close
to financial danger. FedEx is able to evaluate their own financial health to see whether they are
in a position to provide big amounts of credit to its clients. Assessing the financial history is vital
when it comes to business credit risk management but also the financial state of the firm and if it
is competent itself is an important issue to look into.
4.3. Discussion
In addition, a corporation is required to provide some kind of collateral to the financial institution
from whom it would be borrowing money. As a result, FedEx has to supply assets that, if sold on
the market, can generate enough revenue to cover the amount of the loan. The corporation has to
make it clear that the liquidity risk increases proportionately with the size of the underlying
instrument. There are times when businesses have to deal with challenges because of a decline in

35
the price of their securities. In circumstances like these, the firm runs the danger of experiencing
a liquidity crisis since the value of the underlying security cannot support the amount of the loan.
According to Breitenstein, Nguyen, and Walther (2021), a huge corporation like FedEx is always
susceptible to problems regarding its liquidity because of its size. Companies have a
responsibility to maintain adequate security when they are accepting debt from other entities.
The likelihood of the firm being exposed to this risk might be increased by the provision of
unsuitable security in conjunction with the receipt of loans from other companies. As was
already discussed, the cost of security is another factor that changes with time. Therefore, it is
essential that the corporation maintain a constant check on the price of the securities. If you
ignore these considerations, it might put your firm at danger of losing its liquidity, and it could
also affect your connection with other companies. Many times, the risks associated with liquidity
are split into two distinct sections, which are known as market liquidity risks and financing
liquidity risks. In the following paragraphs, we will go into further detail about both of the
liquidity issues.
The vast majority of manufacturers and suppliers base sales of their wares and services on
customers' established lines of credit with their companies. It is conceivable for a client to
purchase a product or service from a firm like FedEx, but then later be unable to pay for it,
causing the company to incur losses. It is more typical in the case of large international
corporations such as FedEx, whose client base is comprised of a very diverse group of people.
The taking of credit risks may result in significant financial losses; hence, the incorporation of
credit risk management is an essential component in the entire financial landscape of a firm.
When it comes to financial problems, business credit is an essential tool for firms. This is
especially true in situations when a company decides to purchase directly from a supplier.
Scholars believe that in a world marked by insecurity, economic crises, wars, and terrorism, the
strategic, operational, and financial risks associated with transport and logistics enterprises are
more likely to be discussed and highlighted. The likelihood of criminal activity occurring during
transportation is increased in places with a high risk of occurrence. Moving items from one site
to another is often only a problem in high-risk locations; but, the transportation and logistics
sector in the United Kingdom continues to confront particular business risks as a result of the
growing influence of globalization. SHIELD's extensive experience and knowledge can assist
you in protecting and safeguarding your transports and teach you how to eliminate risks towards

36
your logistic setup. The industry is threatened by the possibility of huge losses in profit and
customer satisfaction; however, SHIELD can assist you in mitigating these risks. SHIELD
evaluates the risks that are associated with the transport and logistics processes of our customers.
We provide our clients with the information and skills necessary to assess risks, as well as the
methodologies and assistance necessary to react appropriately to the various kinds of hazards.
SHIELD has a wealth of expertise in assisting firms in the manufacturing, shipping, and
transport industries by offering logistics risk management advice and operational help.
It is essential for a company to have effective credit risk management in order to be able to make
educated lending choices and safeguard their cash flow. It is difficult to remove all hazards,
however credit risk management may assist companies in reducing their likelihood of incurring
bad debts and outstanding defaults.The vast majority of manufacturers and suppliers base sales
of their wares and services on customers' established lines of credit with their companies. It is
conceivable for a client to purchase a product or service from a firm like FedEx, but then later be
unable to pay for it, causing the company to incur losses. It is more typical in the case of large
international corporations such as FedEx, whose client base is comprised of a very diverse group
of people. The taking of credit risks may result in significant financial losses; hence, the
incorporation of credit risk management is an essential component in the entire financial
landscape of a firm. When it comes to financial problems, business credit is an essential tool for
firms. This is especially true in situations when a company decides to purchase directly from a
supplier.
The following are the three distinct techniques for credit risk management that FedEx might
employ:
Chance-based pricing is a practice where the lender charges the borrower a higher rate of interest
when they examine the borrower's financial history and determine that there is a risk that the
borrower will fail on the loan. In this context, the customer's previous financial history takes on
the role of the contentious issue at hand. The capacity of the borrower to repay the loan is taken
into consideration when determining the interest rate that will be applied to the loan under this
technique for managing the risk of credit default. When a borrower could have a history of
defaulting on loans, the likelihood of risk automatically rises. When it comes to debt or finances,
a borrower with a solid past will pay a lower interest rate on their loan than a borrower with a
poor financial history.

37
It is possible for this to occur if the lender adds specific clauses or a debt covenant into the
agreement for the loan before the money is distributed to the borrower. Any violation of the
covenant would, by its very nature, result in a warning being sent to the borrower. The warning
indicates that there is a high probability of default in the instance of that specific borrower and
that stringent steps need to be done before the situation becomes worse with the passing of
additional days as time passes. This strategy might be used by FedEx by introducing covenants
into their agreement of credit to any client. These covenants would provide FedEx the ability to
obtain a penalty in the event that the credit agreement was breached.
Periodic MIS reporting is a tactic in which the lender requests a copy of the borrower's financial
accounts in order to do a specified analysis of the borrower's previous financial history. A
person's or organization's financial history may be better understood by consulting their financial
statements. The monthly MIS assists in the monitoring of the borrower's cash flow and assists in
determining whether or not the borrower is financially independent and whether or not the
borrower would be able to repay the credit loan. Due to the fact that MIS reporting is a process
that demands a particular talent as well as a high degree of knowledge, FedEx is able to make
use of a specialized employee for this function.

Financial risks are those risks which an enterprise may face with regards to all the financial
operations of the company. Financial risk management are those practices which help a company
to manage its chances of falling into financial risks. The current economic climate is such that it
has become important for companies to avoid, as much as possible, any financial crisis. The
rising bankruptcy rate among companies and customers is making the system pretty vulnerable
to stark financial catastrophe (Song, Zhang and So, 2021). It is important for the proper
continuation of any organization that its financial wheels are running in a smooth manner. Most
companies make investments in order to improve their financial processes. Naturally, these
investments are always prowling with several risks which if not looked through immediately in a
proper manner can become harmful for the overall functioning of the company. Financial risk
management strategies help the companies to avoid these risks in a significant manner so that
they can further avoid any financial losses and halt its process of success within the markets they
are operating. There are some important financial risk management strategies which FedEx can
employ in order to keep itself safe from various economic problems. Regression analysis is an

38
important method which is recommended by experts and it is a method which is statistical in
nature. Regression analysis helps companies to understand the difference between various
variables and is important in finding the differences between different variables that are found in
the financial database of a company. For instance, when the rate of interest is high or has
decreased, the investment managers of companies use this analysis to find the changes in cash
flow but appropriate data is required to perform this analytical operation to avoid financial risks
(Wang et al., 2020). Security analysis is another important financial risk management strategy
that can be employed by FedEx. It is a process that is used by companies to analyse various
financial tools such as equity and debt. Security analysis is further divided into fundamental
analysis and technical analysis that analyses momentum and trends related to price. Briefly,
security analysis analyses the risks related to the financial security of a company. Value at Risk
is also a financial risk management strategy which helps in determining the percentage of
probable loss which a company can face from a certain amount of investment. This quality of the
method makes it an important strategic tool that is used by companies before making any
investment. FedEx can use these several financial risk management strategies and especially
VaR in order to identify the percentage of loss from an investment. If the VaR percentage is
high, that indicates that the company would need to sell some of its assets to recover the losses.
Scenario analysis is a financial risk management tool which helps in quantifying the financial
risks. Financial managers ask certain questions to themselves while employing this method
regarding the financial position of the company. What if analysis and sensitivity tests are the two
main components of the scenario analysis. 

Conclusion
The overall aim of this study is to highlight the relationship between financial risk management
and the financial performance of a company. The company chosen for this research is FedEx
which is an American multinational conglomerate which bases its business on transportation and
ecommerce. Different methods have been used to gather information for this research. Since a
large part of the research is based upon the usage of secondary data, the author has used data
from pre-existing research taken from online databases for the literature review and further the
findings and result section of the study. Usage of a proper research methodology is an important

39
element for the culmination of any research and the author has also undertaken several ethical
considerations for the research. 

Financial risk management has both qualitative and quantitative nature. The first objective of this
study was to analyse how financial risks affect a business in general. Financial risk management,
as a special area of risk management, has its focus on the issue of how and when hedge must be
done using different financial instruments for the management of a company's exposure to costly
risk (Freitas, 2021). Financial risk is basically the possibility of losing money on investment or a
business venture. Financial risks are broadly and commonly of three kinds: credit risk,
operational risk and liquidity risk. Financial risk is a dangerous thing when it comes to business
and can affect the business of an enterprise due to the loss of capital to different interests.
Financial risks related to credit usually arise from the whole process of borrowing money or
giving products or services on credit. If a customer fails to pay their credited amount on time it
becomes a financial burden for the company which has to face the consequences of financial
losses and other problems. The financial risk which takes place due to problems related to cash
flow is known as liquidity risk. Financial risks such as these put the company in trouble and may
lead to the closure of business. 

Different financial risks and uncertainties pose threats to the survival of the company and
weakens its standing and economic importance within the market. Companies incur liquidity
risks usually while doing loan payments. All businesses possess the need of borrowing money
from an investor from outside so that the company can run, the risk of liquidity becomes a risk
which almost all companies go through (Gasparian et al., 2021). Many businesses borrow money
from other business corporations so that they can fund their ventures but when a project fails the
firms involved in the entire operation are unable to repay the debts they have taken and
consequently face several legal consequences. The firms may face legal consequences but the
company may lose its financial stability nonetheless. 

Financial risk management procedures are such actions that help in the mitigation of the effects
of risks related to finance upon the entire business operation. Since risks are multifaceted it is not
possible to avoid risks simply by spreading the assets around. Marketplace risks have been found

40
to be a systemic risk as a result of the prolonged literary discussions that took place within this
particular research. 

Regression analysis is an important statistical technique which is used by businesses to  examine
the interrelationship that exists between a number of different variables. The tool is quite helpful
since it helps in revealing the properties of all variables that are included within the financial
databases of a company. Usage of a procedure known as security analysis is done by businesses
in order to evaluate their investments such as stocks, bonds or other debt and equity instruments.
Fundamental analysis is a subset of this security analysis and it helps in doing an in-depth
analysis of the key financial elements of the company (Gupta and Siwarkar, 2019). 

For the aversion of a potential financial disaster it is important that companies give diligent
attention to the process of credit risk management. Credit risk management is a complex process
but if broken down into two distinct phases, measurement and mitigation, it can help the
company to suffer financial losses to suffer financial risks due to the process of financial credit.
It is important that a thorough analysis of the borrower’s business quality and previous financial
history be taken into consideration so that the process of credit risk management can successfully
be implemented to avoid suffering any major monetary loss (Howell et al., 2021). 

Business organizations require a solidly comprehensive strategy of risk management so that they
can protect themselves from any potential dangers which the risks might lead the company into.
The company’s analytical nature and the quantitative approach which is used by the decision
makers involved in the implementation of risk management models requires the usage of specific
risk management strategies and instruments. Most businesses usually struggle when it comes to
function without properly trying to assess and manage their exposure to the problem of credit
risk. This study has investigated if there is any link between the process of risk management and
a company’s overall or economic success. The overall success of any company is highly
dependent upon the financial success of the company and it is natural that risk of any kind,
specifically financial risks in this context, does pose a threat to the success of the company which
has been made evident by the detailed discussion on pre-existing research (Marafona, 2021). 

41
Risk management is an important feature when it comes to financial operations and the most
important technique which FedEx would need to apply first and foremost would be to follow all
the procedures of risk management in a professional manner. It is a common practice among
vendors that they inquire about the firm of a client so that they can determine their
creditworthiness. FedEx’s main tactic should be to utilize the crucial indications about all the
risks while trying to issue credit. If a particular vendor, bank or landlord has had payment issues
in the future, this can be checked through referencing the customer’s history from a business
credit bureau. Finding out the history would help the company to ascertain the creditworthiness.
If a person is found to have been late in terms of credit debt or loan payment that could be taken
as an important indication that would help FedEx to know whether or not they are going to give
credit to such a person. Banking and financial data is also easily accessible including the
relationship between the customer and the bank. Analysing the banking and finance data is a
simple but effective means to find the creditworthiness of a person (Qing et al., 2020). 

It is common in the process of risk management to use criterias such as a borrower’s profile and
lender reputation for providing a rating for risk. Credit risk is the first of the 5Cs and FedEx may
utilise the method of assessing the borrower’s financial standing before extending to them any
credit. The company must do a comprehensive evaluation of the business and credit history of
the borrower as it will help the company in determining the most suitable loan amount for the
overall need of the company and also the duration for which the loan should ideally be granted.
If FedEx would follow this section it would be easy for the company to avoid any big financial
problems and ensure the safe repayment of the loan and with it the added interest. Collateral
method may also be used by businesses to repay their loan amounts as in certain cases the
businesses are unable to return their loan amount within the stipulated time frame. In the
collateral method a piece of equipment or a piece of property is used by the borrower to repay its
lender (Schroeder and Lodemann, 2021). FedEx may also use this method after investigating the
collateral that the borrower has; the investigation would help in comparing the value of the
borrower’s property and the borrowed amount and if the borrower fails to pay the loan then the
company can legally take hold of the collateral. FedEx may also seek the usage of external
funding so that they can implement various improvements. It is common for massive business

42
organizations and conglomerates to borrow money from smaller business enterprises for
different reasons and that poses the most common liquidity risk. 

The results and findings of this research have been composed with the intention of filling the
research gap which exists in this subject area. It has illustrated the relationship between financial
risk management and the overall financial performance of a business enterprise and since the
study is country-specific, it narrows down the subject topic consequently making it more suitable
to fill the research gap. However, every research has several limitations and the limitations which
the author faced while undertaking this study was the time-crunch which might have led to
natural lacking of data in certain portions. Also the usage of secondary data for the research
along with the limitation of time would give the future researchers scope for filling the research
gap further in the area of study.

43
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