Benjamins, dough, cabbage, coin, greenbacks. Most of us could rattle off a dozen or more slang words that mean money. But we might be unsure what certain financial terms — operating income, liquidity — mean. When you follow the U.S. Postal Service, this might put you at a disadvantage, especially when it’s quarterly financial statement time.
Operating income measures earnings (revenues minus expenses) before interest and taxes. Liquidity is the amount of financial resources (cash, equity, assets, credit) that an organization can easily convert to cash for spending and investments. Postal officials often mention the Postal Service’s lack of liquidity. Chief Financial Officer Joe Corbett said in January that the Postal Service’s liquidity, at its highest point in the year, is only about $3 billion. This isn’t much cushion for a $65 billion entity. And the cushion shrinks at certain points in the year, such as in October, when the Postal Service makes its workers’ compensation payment to the Labor Department.
UPS and FedEx, companies with revenues about $20 billion less than the Postal Service, have liquidity of about $12 billion and $14 billion respectively, he noted. But what does this mean exactly? Well, companies with strong liquidity positions, such as UPS and FedEx, have much greater access to capital than the Postal Service. They have more opportunity to invest, whether in capital projects or new businesses. The Postal Service’s weak cash position means it cannot invest in the infrastructure or innovation. It also has no margin for error. What happens if a catastrophe strikes in October right after the Postal Service has made its workers compensation payment?
Finally, the Postal Service has no available cash to pay down its debt. It reached its statutory borrowing limit of $15 billion in FY 2012 and it has been unable to borrow from the Treasury Department for more than a year.
via Show Me the Money | Office of Inspector General.