The State of Financial Risk Management: Benchmark Report
The objective of the study was to review, analyze, and identify insights about the financial exposures and risk management practices of corporations in the United States. This study was conducted using the US Securities and Exchange Commission Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database. Data was gathered through individual review of more than 1,850 US public company annual 10-K financial statement filings.
Companies included in the study were those based in the US, publicly held, and with annual revenues between $500 million and $20 billion. Due to the study’s intent to understand common financial risk management practices, certain industries with a specialized financial nature and significant differences from average corporations were omitted. The excluded industries included Banks, Credit Reporting, Financial Services, Insurance, Investment Banking, Investment Services, Investment Trusts, and Property and Casualty Insurance. After filtering by revenue and industry, 1,589 companies were included in this study.
Companies were classified into groupings based on annual revenue, and into sector and sub-sectors using the North American Industry Classification System (NAICS). For analysis purposes, four revenue groupings and ten super sectors and numerous sub-sectors were identified to compare and contrast companies in the data set. The four revenue groupings were $0.5B to $1B, $1B to $2B, $2B to $5B, and $5B to $20B. Approximately one-quarter of the companies fell into each of the four revenue groupings. The ten primary industry sectors, including the number of companies researched, were Construction (33), Education & Health Services (31), Financial Activities (144), Information (111), Leisure & Hospitality (46), Manufacturing (493), Natural Resources & Mining (97), Other Services (9), Professional & Business Services (331), and Trade, Transportation & Utilities (294). For industry specific analysis, the three industry sectors Construction, Education & Health Services, and Other Services were not considered due to limited numbers of companies with exposures.
The most recent 10-K filings were used for the purposes of this research. For the majority of companies analyzed, the filing was for the fiscal year completed at the end of 2015. Each filing was reviewed to determine a number of key variables for each asset class of interest rates, currency, and commodities. Some of the variables included:
1. Exposure by asset class
2. Use of derivatives by asset class
3. Type of currency program utilized: balance sheet and cash flow
4. Application of hedge accounting by asset class