Chesapeake Energy Company Analysis

Chesapeake Energy Company Analysis

Maximum Word Length: 2000 words
The word count is for the main body of the text and ignores the reference list, tables and appendices.  If you exceed the word length you will be penalised.  For details see the Management School Handbooks. https://sites.google.com/a/sheffield.ac.uk/sumshandbook/learningandteaching/coursework/word-limit-policies
Requirements:
On MOLE, within the MGT6151 folder, there is a link for US-based companies. Financial data for all companies are included in the COMPUSTAT – North America database. Other details about the company would be available from their annual reports. Use the link to choose a company which will be allocated on a first-come-first-served basis.
 
Given the company-country combination, address the tasks/questions enumerated below.
 
QUESTION 1 [30 marks = 5 + 15 + 10]
 
(a)   What is (are) the main product(s) of the company?
 
(b)   On the basis of the information obtained from the financial data for the company and other information included in documents such as the annual report, what can you conclude about the exposure of the company to commodity price risk, interest rate risk and exchange rate risk?
 
(c)   Does the annual report of the company acknowledge the presence of any of these (or any other types of) risk? If it does acknowledge the presence of one or more types of risk, does it enumerate ways in which the company proposes to mitigate those risks? On the basis of this information, what can you conclude about the risk management culture of the company?
 
QUESTION 2 [35 marks = 15 + 20]
 
(a)   Using the yield curve for the USA (Sources: https://fred.stlouisfed.org/release?rid=402, https://markets.ft.com/data/bonds, Eikon etc) draw inferences about the likely direction and magnitude of change of interest rates over a 5-year period. Where relevant, make use of constructs such as forward rates.
 
(b)   Given the implications of the yield curve for the direction and magnitude of interest rate changes, and the interest rate exposure of the company, would you recommend that the company (i) do nothing, (ii) completely hedge its interest rate risk using appropriate financial instruments, or (iii) hedge certain types of exposures (e.g., long term debt) but not other types of exposures (e.g., short term debt). Provide justification for your recommendation.
 
QUESTION 3 [35 marks = 15 + 20]
 
(a)   Using the data on the movements of the US dollar against the other major global currencies such as the Euro, the British Pound, the Japanese Yen, and the Chinese Reminbi (Source: https://markets.ft.com/data/currencies/tearsheet/summary?s=USDEUR, Eikon etc), discuss the past volatility of and recent trends in the exchange rates of TWO of these currencies vis-à-vis the US dollar. Where possible, choose these two currencies on the basis of your understanding of the exposure of the company to currency risk (e.g., is the company more exposed to the Euro or the Chinese Reminbi).
 
(b)   Given the implications of the movement of the US dollar against global currencies, and the exposure of the company to currency risk, would you recommend that the company (i) do nothing, (ii) completely hedge its currency risk using appropriate financial instruments, or (iii) move part of its business operations overseas to mitigate possible mismatches between the currencies in which it earns revenue and currencies in which it incurs cost? Provide justification for your recommendation.
 
Assessment criteria Hard Fail
(0-39)
Soft Fail
(40-49)
Pass
(50-59)
Merit
(60-69)
Distinction
(70-79)
Distinction
(80+)
 
Use and analysis of company-level information
(Relevant for 1(b), 1(c))
Haphazard reporting of the data/ information with minimal discussion Reasonable presentation of data/ information with superficial discussion Reasonable presentation of data/ information with a simple analysis the connects the dots Reasonable presentation of data/ information with a critical analysis that connects the dots Reasonable presentation of data/ information with a critical analysis that connects the dots and draws meaningful conclusions Reasonable presentation of data/ information with an analysis that connects the dots and draws meaningful conclusions, with an understanding of the limitations of the analysis  
Use and analysis of market data
(Relevant for 2(a), 3(a))
Haphazard reporting of data with minimal discussion Reasonable presentation of data with superficial discussion Reasonable presentation of data with an analysis that highlights plausible economic drivers of the relevant variables Reasonable presentation of data with an analysis that plausible economic drivers of the relevant variables, and draws meaningful conclusions Innovative presentation of data with an analysis that links the data to underlying theories/ frameworks and draws meaningful conclusions Innovative presentation of data with an analysis that links the data to underlying theories/ frameworks and draws meaningful conclusions, with an understanding of the limitations of the analysis  
Analysis and recommendations
(Relevant for 2(b) and 3(b))
Superficial analysis that does not draw on available evidence Superficial analysis that makes an attempt to draw on available evidence Simple analysis that draws on available evidence and connects the dots Critical analysis that draws on available evidence and connects the dots Critical analysis that draws on available evidence and connects the dots, and draws meaningful conclusions Critical analysis that draws on available evidence and connects the dots, and draws meaningful conclusions, with an understanding of the limitations of the analysis  
Referencing:
Harvard style referencing is not required for this assessment. However, the source of all data or information used for the analysis should be indicated using footnotes.

 

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