Financial Risk Management - James Hardie

In: Business and Management

Submitted By tundr8
Words 1689
Pages 7
Executive Summary
James Hardie is the largest manufacturer of fiber cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand and the Philippines. Through significant research and development expenditure, James Hardie developed key product process technologies that provide James Hardie a competitive advantage.

Financial crisis had a significant impact on the construction industry. USA is the largest market of James Hardie, its demand for new building construction and renovations near historic lows. However, operation in Asia-Pacific region reflects a strong customer market and significant expenditure on R&D provides it with competitive advantages. These are all the strengths James Hardie has when facing extreme shifts.

Foreign exchange risk is considered as one major financial risk for the company. The volatility of AUS/USD exchange rate significantly affected corporation costs that incurred in AUD but reported in USD. It is suggested to a use forward rate agreement to hedge over 71% of Asbestos-related asset and liabilities that are not naturally hedged.

Commodity Price risk is another significant financial risk for the group. Pulp demonstrated more price sensitive than other input and its price had been extremely volatile the past few years. Recent high commodity price resulted in significant increase in cost of sales and decrease in profit margin. A pulp call option is recommended to ensure company’s profit margin stay above 20%.

Company Background
James Hardie is an Australia public listed company and has become the largest manufacturer of fibre cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand and the Philippines. Through significant research and development expenditure, James Hardie…...

Similar Documents

Financial Risk Management

...Foreign Exchange Risk Management Michael Highfill Liberty University BUSI 620 – B05 LUO Dr. Mike Thirtle July 6, 2012 Foreign Exchange Risk Management Introduction Foreign exchange (FX) is a risk factor that must be considered by all firms that wish to enter, grow, and succeed in the global marketplace. Although most U.S. exporters prefer to sell their goods in U.S. dollars, creditworthy foreign buyers are increasingly demanding to pay in their local currencies (“Foreign Exchange Risk Management”, n.d.). Therefore, this currency exchange adds risk to any global trade that must be accounted for and managed, for a firm to remain competitive in the global marketplace. Definitions Foreign Exchange Risk Before we begin our discussion, we must define a working definition of foreign exchange risk. Global commerce is facilitated through foreign exchange markets. These markets affect global commerce in two ways. First, importers exchange their domestic currency for foreign currency, in order to purchase international goods. Second, multinational companies exchange profits earned in foreign currencies for domestic currency to use in their home nation. The foreign currency exchange market is made up of corporations, governments, and private individuals who trade international currencies among themselves (Bofah, n.d.a). The exchange rates for currency pairs such as the United States (U.S.) dollar and the Euro......

Words: 2596 - Pages: 11

Financial Risk Management

...Financial Risk Management Douglas, Willie (week 1) University of Phoenix FIN/419 January 7, 2012 Finance Risk Management Whether embarking in business ownership or partnership there is a certain amount of risk involved. An understanding of the various types of businesses, and the strengths and weaknesses of each, will definitely aide in making a good, sound business decision of which type of business to invest in. This paper will discuss the role of limited liability corporations and partnerships; and also provide a scenario of what circumstance would cause one to choose a particular type of business to invest in, or own, over of the other. Roles of Limited Liability Corporations Limited Liability Corporations also known as LLCs are numerous and they provide various products and services today. However, the roles of Limited Liability Corporations were established to grant protection to business members from losing their personal assets in litigation. According to Gitman, L. J. (2009), “LLCs are permitted in most states and may enjoy taxation as a partnership and can own 80 percent ownership of other corporations and partnerships” (pg. 8). “If the LLC is properly formed and operated under state law, its members are not personally liable for the entity’s debts and obligations. An LLC that has at least two members is classified as a partnership for federal tax purposes unless the members elect to be taxed as a corporation”......

Words: 905 - Pages: 4

Rbs Financial Risk Management

...regulator is vital to its success. Therefore, most of the banks’ design of internal risk management systems will reflect in terms of the core elements, the risk evaluation process used by the regulator. Q - What does the «three lines of defence» model involve? * The Business - It’s accountable for the ownership and day-to-day management and control of operational risk. Responsible for implementing processes in compliance with group policies. * Operational Risk – Implementation and maintenance of the operational risk framework, tools and methodologies. * Group Internal Audit – Providing independent assurance on the design, adequacy and defectiveness of group’s system of internal controls. Q - How are risk exposures measured within RBS? What are the main limitations of the measurement techniques used by the bank? It’s usually the Group of Directors who set the overall risks appetite and philosophy and they all participate in discussing the strategy, performance and the financial risk management of the organization. This kind of system brings some disadvantages as the CEOs may dominate decision-making. There might be a high degree of cynicism among the investors about the statements of risk management that appear in the annual reports. Q - Which are the key risk categories actively managed by the bank? * Credit Risk - Traditional bankers and lending money. * Market Risk -...

Words: 306 - Pages: 2

James Hardie

...1. Who are the stakeholders in the James Hardie asbestos case? Hoffman, Frederick & Schwartz (2001, p163) stated that corporations have stakeholders, that is, groups and individuals who benefit from or are harmed by, and whose rights are violated or respected by, corporate actions. Based on the James Hardie asbestos case, the stakeholders included customers who used the product, employees and families of employees, local community, suppliers, demolition contractors, the neighbours of mines and manufacturing plants and the Government of Australia (Shaw, Barry & Sansbury 2009, pp 262-263). (54 words) 2. What do you think of the way in which the boards of James Hardie have managed the asbestos compensation issue? The board of James Hardie Industries has managed the asbestos compensation issue with principles of egoist. Egoism defined as an act is morally right if and only if it best promotes a person’s long term interest (Shaw, Barry & Sansbury 2009, pp59-60). Based on the case, the action of James Hardie has used the restructuring to limit its liability and the concept of Separate Legal Entity to protect him in 2001 to avoid the compensation issue (Shaw, Barry & Sansbury 2009, p 263). However, on Thursday 15 February 2007, the long-term interest has no longer promoted to the company due to the Australia Securities and Investment Commission (ASIC) commenced civil penalty towards on the company. (Shaw, Barry & Sansbury 2009, p 263) Therefore,...

Words: 938 - Pages: 4

Financial Risk Measurement for Financial Risk Management

...NBER WORKING PAPER SERIES FINANCIAL RISK MEASUREMENT FOR FINANCIAL RISK MANAGEMENT Torben G. Andersen Tim Bollerslev Peter F. Christoffersen Francis X. Diebold Working Paper 18084 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 May 2012 Forthcoming in Handbook of the Economics of Finance, Volume 2, North Holland, an imprint of Elsevier. For helpful comments we thank Hal Cole and Dongho Song. For research support, Andersen, Bollerslev and Diebold thank the National Science Foundation (U.S.), and Christoffersen thanks the Social Sciences and Humanities Research Council (Canada). We appreciate support from CREATES funded by the Danish National Science Foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2012 by Torben G. Andersen, Tim Bollerslev, Peter F. Christoffersen, and Francis X. Diebold. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Financial Risk Measurement for Financial Risk Management Torben G. Andersen, Tim Bollerslev, Peter F. Christoffersen, and...

Words: 41700 - Pages: 167

Financial Institutions Management a Risk Management Approach 7e

... Financial Institutions Management A Risk Management Approach The McGraw-Hill/Irwin Series in Finance, Insurance and Real Estate Stephen A. Ross Franco Modigliani Professor of Finance and Economics Sloan School of Management Massachusetts Institute of Technology Consulting Editor FINANCIAL MANAGEMENT Adair Excel Applications for Corporate Finance First Edition Block, Hirt, and Danielsen Foundations of Financial Management Fourteenth Edition Brealey, Myers, and Allen Principles of Corporate Finance Tenth Edition Brealey, Myers, and Allen Principles of Corporate Finance, Concise Second Edition Brealey, Myers, and Marcus Fundamentals of Corporate Finance Sixth Edition Brooks FinGame Online 5.0 Bruner Case Studies in Finance: Managing for Corporate Value Creation Sixth Edition Chew The New Corporate Finance: Where Theory Meets Practice Third Edition Cornett, Adair, and Nofsinger Finance: Applications and Theory First Edition DeMello Cases in Finance Second Edition Grinblatt (editor) Stephen A. Ross, Mentor: Influence Through Generations Grinblatt and Titman Financial Markets and Corporate Strategy Second Edition Higgins Analysis for Financial Management Ninth Edition Kellison Theory of Interest Third Edition Kester, Ruback, and Tufano Case Problems in Finance Twelfth Edition Ross, Westerfield, and Jaffe Corporate Finance Ninth Edition Ross, Westerfield, Jaffe, and Jordan Corporate Finance: Core Principles and Applications Third Edition Ross, Westerfield, and Jordan......

Words: 393337 - Pages: 1574

Financial Risk

...Introduction Financial risk takes place when an individual or company is exposed through numerous financial transactions. These transactions may include sales, purchasing, different types of investments, loans, volatile markets due to political situations and more. Financial prices may change as a result of changes in interest rates, inflation, the exchange rate, and many more economic reasons such influences of the European markets as well as the United States. These occurrences can result in increased cost and reduced revenues. It is clear that these aspects make it difficult to plan the operations of an organization. Another aspect that greatly influences the financial risk of organisations is Porter’s Five Forces analysis. Figure 1 below shows how these forces interact. Figure 1 – Porter’s Five Forces analysis model If these forces are intense such as in the airline industry, the risk is much greater. If these forces are benign, such as in the soft drink industry, the risk might not be very great. Systematic risk Systematic risk is also known as market risk or un-diversifiable risk. It is the uncertainty inherent to the entire market or segment. This type of risk consists of fluctuations in a stock’s price. Volatility is a measure of risk because it refers to the behaviour or temperament of an investment rather than the reason for this behaviour. Sources of systematic risk normally affect the entire market and cannot be avoided through diversification.......

Words: 1797 - Pages: 8

Financial Risk Management

...Brief Introduction of Financial Risk Management Financial risk management is an interdiscipline with various researching subfields including the studies of mathematical methods to maximum the profits, quantitative analysis of financial databases and investment decisions. In other words, it is aimed to bridge the gap between mathematical theories and practical financial analysing tools (Nawrocki 1999). It could also be defined as“Living with the possibility that future events may cause adverse effects” (Kloman 1999). Risk and profit are always an integral. The variety of risks including portfolio risk, credit risk and liquidity risk became a financial conundrum which equalled to a group of destructive nuclear bombs hidden in the monetary market. Consequently, the risk management represents the core competence in insurance and banking industries. With the innovation of IT technology, more advanced computer software has been introduced in financial area which results that the risk management has made impressive strides in last decade. As the academic field mature constantly, the abstract mathematical and statistic concepts reifies to accessible programs which could predict the trends of investment returns, for example, the expected earnings at the end of next week after buying certain amount of stock at next Monday (Chapman 1996, iv). The origin of risk management could date back to the game theories introduced by two French......

Words: 1007 - Pages: 5

Credit Risk Management of Non-Banking Financial in Ghana

...LONDON SCHOOL OF BUSINESS AND FINANCE CREDIT RISK MANAGEMENT OF NON-BANKING FINANCIAL INSTITTUTION IN GHANA (A CASE STUDY OF TF FINANCIAL SERVICES) BY STEPHEN KWADWO NTIRI A Thesis Submitted to the London School of Business and Finance in Partial Fulfilment of the Requirement for the MBA Degree in Financial Services MARCH 2010 DECLARATION I Stephen Kwadwo Ntiri hereby declare that except for references to other people’s work, which have duly been acknowledged, the work presented here was carried out by me, MBA student of Financial Servies at the London School of Business and Finance (LSBF), under the supervision of Randolph Metz-Johnson. I also declare that this work has never been submitted partially or wholly to any other institution for the award of a certificate. …………………………………………… ……………... Stephen Kwadwo Ntiri Date (Student) ………………………………………… …………… Randolph Metz-Johnson Date (Supervisor) Dedication This research project is dedicated to Almighty God for His abundant blessings and protection given me throughout this study, and also to my family for the support I received from them. Acknowledgement I am most grateful to Almighty God who through His infinite mercy and love guided me throughout the duration of the programme. I wish to acknowledge the help and encouragement I got from the entire staff of TF Financial Services, especially Mr. Benjamin Turkson, which has enabled me to complete this work. I also want to thank my wife, Esther......

Words: 12787 - Pages: 52

Impact of Financial Risk Management

...8. Timetable 9 9. Problems of the Fact 10 10. Conclusion 10 11. Reference 11 12. Appendix 12 Abstract Commercial Banks are the most dominant financial institutions in the domain of commerce and industry. The efficiency of commercial banks is dependent on their ability to mobilize fund profitability, which can enhance their corporate value. There can be few, if any, parts of the economy in which risk management is more important than the financial sector. Financial institutions account for a sizeable number of the world's leading companies and have a critical role to play in the economics of every country and thus in world economic order as a whole. The research will be focusing on the case study method by interviewing the concerned person that will provide detailed analysis of such Bangladeshi commercial banks of the country as their business operation is being centered on taking risks in conditions of uncertainty. The process with such focus on how outcomes relate to effective risk management will be deemed important. The results should achieve in answering such issues and problems presented based on research findings and information researches to support whatever data is gathered respectively. In this research we shall try to focus on how risk management i.e. firms’ financial valuation to its customer and management to added corporate value, may help the commercial banks of Bangladesh.   1. Introduction Economy of a country and its banking system are......

Words: 3585 - Pages: 15

Management Risk

...For the provided case study, you will assume the role of the risk manager/assessor. 1. Review the provided MacVille Risk Management Policy and Risk Management Strategy and complete a written report for your manager (your assessor) that addresses the following steps. a. Scope – Identify the scope of risk management required in your identified role. b. Goals – Identify and describe the critical success factors, goals or objectives for areas included in scope. c. Stakeholders – Identify internal and external stakeholders, their role in the process, and any issues or concerns they have. Present this using the table format provided. d. Analysis – Complete a PEST analysis and a SWOT analysis for risks associated with the scenario. Include reference to relevant legislation. e. Research – Review and summarise the research information provided in the case study, as well as any literature available that is relevant to this scenario. f. Describe – Complete the analysis of risk for the scenario by summarising the scenario and associated risks, accompanied by checklists, diagrams or flowcharts that support the summary. 2. After you have completed the above steps, you need to meet with your manager and discuss the draft report you have developed, especially your understanding of the critical success factors and goals (you should check that your manager agrees with your findings). 3. As part of your discussions you also need to discuss......

Words: 4338 - Pages: 18

Financial Risk Management

... ESSENTIALS of Financial Risk Management Karen A. Horcher John Wiley & Sons, Inc. ESSENTIALS of Financial Risk Management Essentials Series The Essentials Series was created for busy business advisory and corporate professionals. The books in this series were designed so that these busy professionals can quickly acquire knowledge and skills in core business areas. Each book provides need-to-have fundamentals for those professionals who must: Get up to speed quickly, because they have been promoted to a new position or have broadened their responsibility scope • • Manage a new functional area • Brush up on new developments in their area of responsibility • Add more value to their company or clients Other books in this series include: Essentials of Accounts Payable, Mary S. Schaeffer Essentials of Balanced Scorecard, Mohan Nair Essentials of Capacity Management, Reginald Tomas Yu-Lee Essentials of Capital Budgeting, James Sagner Essentials of Cash Flow, H. A. Schaeffer, Jr. Essentials of Corporate Performance Measurement, George T. Friedlob, Lydia L. F. Schleifer, and Franklin J. Plewa, Jr. Essentials of Cost Management, Joe and Catherine Stenzel Essentials of Credit, Collections, and Accounts Receivable, Mary S. Schaeffer Essentials of CRM: A Guide to Customer Relationship Management, Bryan Bergeron Essentials of Financial Analysis, George T. Friedlob and Lydia L. F. Schleifer Essentials of Financial Risk Management, Karen A.......

Words: 61657 - Pages: 247

Financial Risk Management

...JONATHAN MUROMBA 2012178104 FINANCIAL RISK MANAGEMENT Management of Financial Institutions and The Banking Crisis Risk is uncertainty. The more risk one takes, the more he or she stands to lose or gain. One cannot expect high returns without taking substantial risks. The outcomes are thrown open to uncertainty. In general, when we talk about risk, we focus on financial risk. In financial terms, it is the risk that a company or individual could lose some or all of the original investment, possibly resulting in inadequate cash flow to meet financial obligations. All wise investments follow risk consideration. To be successful, every investor must be able to identify and understand the types of risk they face across their entire portfolio. Therefore, risk can present great opportunities for those who understand and know how to manage it. Advances in risk management theory have had a tremendous impact on global economic development. Now there are powerful ways to analyze risks and make stable decisions about the future. We can identify and measure different types of risk, and decide which ones to take and which ones to avoid and it is of paramount importance to take note that if if not properly managed, risks can lead to disastrous outcomes or even to the demise of institutions In the United Kingdom (UK), the repercussions of the banking crisis affecting the financial sector became an issue of a wider economy. In January 2009, it was confirmed that the UK officially......

Words: 1763 - Pages: 8

Evaluating the Effect Financial Risk Management on the Financial Performance of Banks in Kenya

...different outcomes, risk and how to manage it has become a critical issue. The recent global financial crisis served as a reminder that risk management and how the same is practiced is fundamental if performance objectives are to be consistentlyachieved. It has emerged that as business owners and managers strive to improve and sustain performance they are now also required to consider what risk management practices their organizations have adopted to avoid falling short of their strategic objectives. This is even more so in the financial services sector which was the most affected during the recent financial crisis. The objectives of this study were to analyze the risk management practices undertaken by Commercial Banks in Kenya and to determine and assess the effect of these risk management practices on their financial performance. The risks facing financial institutions are mainly classified into; strategic, operational, credit and market risks. In managing these risks, the risk management approach adopted by the owners and/or management was influenced by the organizational culture and support, whether or not risk management is integrated in the setting of organizational objectives, whether there is a documented risk management policy or framework, how the risk identification process is conducted, the risk analysis process, evaluation and treatment of risk; risk monitoring and review; and last but not least ensuring that there is effective risk management. In order to carry......

Words: 541 - Pages: 3

Financial Risk Management

...following, For the year-ended 31 Dec.09, Profits to be taxed=40,000* (0.912-0.888) = $960; For the year-ended 31 Dec. 2010, Profit to be taxed = 40,000 * (0.888-0.883) = $200. QUESTION 3 The standard deviation of quarterly changes in the prices, σs=0.65; The standard deviation of quarterly changes in the futures prices, σF=0.81; The co-efficient of correlation, ρ=0.8 The optimal hedge ratio, That is, the size of the position should be taken in the futures contracts is 64% of the size of its exposures. The hedge effectiveness is 0.8^2=0.64. By doing so, we are sure of 64% of risk level could be hedged with optimal variance. QUESTION 4 (a) The forward price, F0, as: F0 = S0e^(r-q)T So that, F0 = 40e^(0.1-0)×1 = 44.24 or $44.21 So, the initial value of the forward contract is zero. Six month later, the price of the stock is $45 and the risk-free interest rate is still 10% The value of the contract, ⨍, as: ⨍ = S0 - Ke^-rT So that, ⨍ = 45 - 44.21e^-0.1×0.5 = 2.946 or $2.95 The forward price, F0, as: F0 = S0e^(r-q)T So that, F0 = 45e^(0.1-0)0.5 = 47.31 or $47.31 QUESTION 5 The theoretical futures price, F0, as: F0 = S0e^(r-q)T So that, F0 = 400e^(0.10-0.04)×4/12 = 408.08 The futures price for a contract deliverable in four months is 400. This shows that the index futures price is lower than the index. Therefore, the correct arbitrage strategies based on the calculation......

Words: 702 - Pages: 3

VideoProc 3.1 | Honey and Clover | fnp, ancc test questions