Business

Questions 1. Why does Porsche face more operating exposure than Mercedes or BMW? 2. Is Porsche really fully hedged through July 31, 2007? Suppose that gains on all its outstanding options were included in reported earnings for its fiscal year ended July 31, 2004. 3. Why would analysts be nervous if up to 75% of […]

Questions 1. Why does Porsche face more operating exposure than Mercedes or BMW? 2. Is Porsche really fully hedged through July 31, 2007? Suppose that gains on all its outstanding options were included in reported earnings for its fiscal year ended July 31, 2004. 3. Why would analysts be nervous if up to 75% of

Mini-Case Porsche Revs Up Its Results The strong euro dented the profits of most European automakers in 2004, but Porsche found a way to turbocharge its profits—despite the fact that Porsche has greater exposure to currency risk than most of its peers. Unlike Mercedes or BMW, both of which have U.S. plants, Porsche makes its

Application DaimlerChrysler Hedges Its Operating Exposure In August 2003, DaimlerChrysler AG acknowledged that more than half its second-quarter operating profit was generated by foreign exchange hedging transactions. In July, the automaker had reported a quarterly operating profit of €641 million, beating analyst expectations. At the time, the company said that currency trading activities to reduce

Financial Management of Exchange Risk The one attribute that all the strategic marketing and production adjustments have in common is that accomplishing them in a cost-effective manner takes time. The role of financial management in this process is to structure the firm’s liabilities in such a way that during the time the strategic operational adjustments

Application Toshiba Copes with a Rising Yen by Cutting Costs By 1988, Toshiba’s cost cutting reduced its cost-to-sales ratio to where it was before the yen began rising. The company shifted production of lowtech products to developing nations and moved domestic production to high-value-added products. At a VCR plant outside of Tokyo, it halved the

Application Kodak Plans for Currency Changes Historically, Eastman Kodak focused its exchange risk management efforts on hedging near-term transactions. It now looks at exchange rate movements from a strategic perspective. Kodak’s moment of truth came in the early 1980s when the strong dollar enabled overseas rivals such as Fuji Photo Film of Japan to cut

Planning for Exchange Rate Changes The marketing and production strategies advocated thus far assume knowledge of exchange rate changes. Even if currency changes are unpredictable, however, contingency plans can be made. This planning involves developing several plausible currency scenarios (see Section 11.4, p. 420), analyzing the effects of each scenario on the firm’s competitive position,

Application Nissan Reverses Course In 1993, Nissan renounced a decade-long quest to build cars in ever more sizes, colors, and functions to cater to every conceivable consumer whim. That effort had spun out of control. For the 1993 model lineup alone, Nissan offered 437 different kinds of dashboard meters, 110 types of radiators, 1,200 types

Raising Productivity. Many U.S. companies assaulted by foreign competition made prodigious efforts to improve their productivity—closing inefficient plants, automating heavily, and negotiating wage and benefit cutbacks and work-rule concessions with unions. Many also began programs to heighten productivity and improve product quality through employee motivation. These cost cuts stood U.S. firms in good stead as