Assignment 2
Find two companies in the same industry (particularly, try to find competitors). These companies cannot be Apple vs. Samsung, or Tesla vs. NIO.
They must be companies that are listed (so you can find their stock price), and if possible, companies that operate internationally (or have international exposure).
Choose one year to make a comparison between the two. You must read the financial statements for the year you have chosen.
When going over their financial statements, list all of the risk factors affecting both companies (e.g. Exchange rate risk, interest rate risk, fuel price risk, demand risk)
Run a regression for their stock price against the risk factors that you identified (Use Excel functions.
If you forgot how to use Excel, Google will help. See the sample project for an example). For the regression, you will need to use several years of data (not just the year you picked to compare).
Make sure the data you use is in the same format (for example, all monthly data, or all weekly data).
Read their financial statements and conclude whether any of the risk factors is having an impact on their stock price. If they are hedging the risk factor, are they doing a good job of hedging?
The report must be no longer than 4 pages (font size cannot be smaller than 11). You can put all supporting evidence in the Appendix.
You must submit the Excel file with the regression analysis.
Electronic submissions, please use the dropbox.
Question 6 – Amazon Risk Factors 2020 Annual Report
https://s2.q4cdn.com/299287126/files/doc_financials/2021/ar/Amazon-2020-Annual-Report.pdf
Economic, political hurdles with exporting, custom duties
Restrictions with certain products
Business Licensing
Exchange rate risk
Technology infrastructure
Differing payable and receivable cycles which result in cash flow discrepancies
Privacy laws
Consumer spending habits differing from country to country
Less credit card usage due to repayment risk
Difficulty managing foreign operations
Work council and labor unions resulting in a different dynamic with employee and employers
Foreign corrupt payments
Laws and policies that affect foreign trade, investment, loans, taxes
War and terrorism level events
During certain times of year, Amazon will see a large uptick of orders being placed as a result of product launches, weather or geopolitical events which puts a strain on operations that can result in a backlog of orders, slow response times and a lowering of consumer satisfaction which would also lower the stock price and potential growth of the company. (Pg.19)
Walmart,
Cash Flow Hedges
The Company is a party to receive fixed-rate, pay fixed-rate cross currency interest rate swaps used to hedge the currency exposure associated with the forecasted payments of principal and interest of certain non-U.S. denominated debt. The Company records changes in the fair value of these swaps in accumulated other comprehensive loss which is subsequently 59 reclassified into earnings in the period that the hedged forecasted transaction affects earnings. These derivatives will mature on dates ranging from April 2022 to March 2034.
Net Investment Hedges
The Company is a party to receive fixed-rate, pay fixed-rate cross currency interest rate swaps used to hedge the currency exposure associated with net investments of certain of its foreign operations. The Company records changes in fair value attributable to the hedged risk in accumulated other comprehensive loss. These derivatives will mature on dates ranging from July 2020 to February 2030. The Company also designated certain foreign currency denominated long-term debt as a hedge of currency exposure associated with the net investment of these operations. The Company records foreign currency gain or loss associated with designated long-term debt in accumulated other comprehensive loss. As of January 31, 2020 and 2019, the Company had $3.9 billion, respectively, of outstanding long-term debt designated as net investment hedges. These derivative and non-derivative gains or losses continue to defer in accumulated other comprehensive loss until the sale or substantial liquidation of these foreign operations.
Cash Flow Hedges
The Company is a party to receive fixed-rate, pay fixed-rate cross-currency interest rate swaps to hedge the currency exposure associated with the forecasted payments of principal and interest of certain non-U.S. denominated debt. The swaps are designated as cash flow hedges of the currency risk related to payments on the non-U.S. denominated debt. The effective portion of changes in the fair value of derivatives designated as cash flow hedges of foreign exchange risk is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The hedged items are recognized foreign currency-denominated liabilities that are re-measured at spot exchange rates each period, and the assessment of effectiveness (and measurement of any ineffectiveness) is based on total changes in the related derivative’s cash flows. As a result, the amount reclassified into earnings each period includes an amount that offsets the related transaction gain or loss arising from that re-measurement and the adjustment to earnings for the period’s allocable portion of the initial spot-forward difference associated with the hedging instrument. These derivatives will mature on dates ranging from April 2022 to March 2034.
