Costco is a multinational company in an industry that foreign operations and foreign currency risk exposure play a significant role in the companies’ core business and their financial performance. Explain the rationale of your selection (Costco).
What geographic areas other than their home country does the company conduct business? What percentage of sales revenue is generated from operations in these foreign markets respectively? How did the distribution change/evolve in the past 3-5 years?
Pick three foreign markets that generates most sales revenues for the company, and present the fluctuation of the exchange rate in the past three years (must with monthly data and graphs).
Estimate the magnitude of impact of the exchange rate fluctuations on the company’s sales revenue in the past three years (must show your calculation). See if you could find information in the company’s annual reports to confirm or adjust your estimate.
How does the company manage foreign currency transaction (and translation) risk?
Which method does the company use to translate foreign currency financial statements? How do you know? What are the translation adjustment amounts in the past three years?
Compare your selected company to 3-5 of its industry peers (Such as Walmart, Superstore, IGA), comment on the following: How does the weight, diversity and location of foreign operations compare to its peers? Why do you think the company made the decision to operate in the locales chosen?
How does the company’s risk management strategy compare to its peers? What are the similarities and differences in managing their foreign currency exposure?
Is the company’s translation method consistent with its industry peers? If not, did the company disclose the reason why it uses the method as chosen?
Based on all above, provide your evaluation of the company’s risk management strategies and how effectively the strategies were executed as reflected in the financial results in the company’s past three years.
