The subject of the topic is about the practice of financial management among large united states corporation. It deals with the analysis of the various variables taken in the study.

1. The Practice of Financial
Management among Large United
States Corporations
Presented by:
Anjana Joshi
Ashik Basel
Ashrit Maskey
Bandana Khadka
Bijay Pandey
Bindu Pantha
Dan Bahadur Bhandari

2. Contents
1. Research Context
2. Purpose of the Study
3. Literature Review
4. Survey procedures
5. Survey Result
6. Major Findings
7. Conclusion

3. Research Context
The research examines how large corporation from the US have responded to
challenges of globalization during the 1980s and early 1990.
The survey was conducted among the Fortune 500 corporations.
The survey was conducted regarding their specific usage of a variety of working
capital, capital budgeting, and sales forecasting techniques.
Furthermore, the survey inquired about their usage of the futures markets to
hedge a variety of financial risks.
Comparisons with earlier surveys reveal that corporations in general have
noticeably increased their use of sophisticated financial management techniques.

4. Purpose of the study
The main objective of this study is to examine the challenges faced by
globalization and what will the remedies for this various challenges i.e.
volatile interest rates, failure of commercial banks, lack of financial
sources, thread of hostile takeover.
Moreover, the survey also examines how well the U.S companies address
to these issues by employing various financial analysis tools, such as cash
budget, break-even analysis, financial and operating leverage, sources
and uses of capital, security portfolio model, account receivable models,
inventory management models, average ROR, payback, NPV, IRR,
expected return, variance of return, correlation of returns, etc.

5. Literature Review
Many other researchers have conducted various survey on similar topic and have
reached to various conclusions.
Petry (1975) analysed the use of multiple measures of project worth by the
Fortune 500.
Scapen and Sale (1981) examined the relationship between methods of
controlling capital investment, measures of divisional performance, and level
of organizational autonomy.
Gitman and Maxwell (1985) surveyed the Fortune 1000 and found that
firms devote the majority of their time to the management of short-term
working capital assets.
Moore and Reichert (1983) found that as firm begins to introduce decision-
making models in one area, they are likely to begin to employ sophisticated
analytical tools in other areas as well.

6. Reichert, Moore, and Byler (1988) found that a significant percentage of large
U.S. corporations used financial futures to hedge foreign currency risk and
regularly employed formal cash management models to minimize operating cash
requirements.
Trahan and Gitman (1993) analyzed possible gap between the theory and
practice of financial management by surveying the Fortune 500 and Forbes
500 Best Companies.
The purpose of the various surveys is to extend the literature regarding the
current practice of financial management among large U.S. corporations.

7. Survey Procedures
Primary data was used through mailed questionnaire method.
The questionnaire was mailed during 1991 to the Chief Financial Officer (CFO)
of each of the companies listed in the April 1990 Fortune Magazine directory.
The survey was able to generate a response rate 30.2% out of 500 approached,
151 completed the questionnaire.
The sample was representative of a broad cross section of major industrial firms
with only one industry, the music, toy, and sports industry, unrepresented.
The vice president of finance (27.4%), the assistant treasurer (16.3%), and the
treasurer (15.6%) were the most likely to have completed the questionnaire.

8. Survey Result
The result obtained was regarding composite, chi-square and coefficient of
variation.
Composite % measures the percent of the overall industry using particular
financial tool.
Chi-square is used to measure whether there is significances in observed
industry averages or not.
CV is used to measure the variability in the use of different financial
techniques among different U.S. corporations.
The survey was carried out for different set of firms and industry.

9. Major Findings

10. Proj. Cash
Budget
Break even
Analysis
Fin & oper.
Leverage
Sources & uses
of Fund
91.9
37.9
59.7
9095.5
46.5
63
91.294
37.5
66.9
89.6
General Financial Management Techniques(%)
1980 1985 1991

11. Exhibit 1. Analysis of Working capital Techniques
Industry 1991 sample size
Proj.cash
budget
Break-even
analysis
Fin. &oper.
level
Source and use of
capital
Mining, Crude Oil Production 5 100% 40% 80% 100%
Food, Beverage, Tobacco 14 86 43 77 79
Textiles, Apparel, Vinyl Floor 6 100 67 83 83
Paper 12 92 36 67 100
Publishing 7 100 17 86 100
Chemicals 17 94 38 69 94
Petrolem Refining 14 100 64 50 93
Rabber & Plastic 3 100 33 100 100
Glass, Concrete, Abrasives 5 80 20 40 100
Metal Manufacturing 8 86 33 71 100
Metal Products Fabrication 5 100 40 60 100
Electric & Appliances 14 100 36 71 62
Shipbuilding, RR, Trans, Eqmt 4 100 25 50 67
Scientific & Photographic Eqmt 5 80 40 60 80
Motor Vehicles 6 100 40 60 100
Aerospace 4 75 50 100 100
Pharmaceuticals, Soap 6 100 0 50 83
Office Equip& Computers 5 100 40 40 100
Industrial & Farm Equipment 11 91 20 64 91
Number of Responses 149 144 145 144
Coefficient of Variation (CV) 9 43.5 26.2 13.6
1991 Composite 94 37.5 66.9 89.6
1991 Level of Chi-square Sig 94.0 0.73 0.79 0.21
1985 Composite 95.2 46.5 63.8 91.2
1980 Composite 91.2 37.9 59.7 90.0

12. Cash
Management
models
Security
Portfolio
model
Accounts
Receivable
models
Inventory
Management
Model
61.7
0 10.1
56
71
23.5
53.8 60.3
70.3
20.3
59.4 59.4
Working Capital Techniques(%)
1980 1985 1991

13. Exhibit 2. Analytical Techniques Used in Project (Percentage of firms by Industry Indicating "Frequent" Use
Industry Cash Mgt Models
Security Portfolio
Model
Account Rec
Models
Inventory Mgt
Models
Mining, Crude Oil Production 100% 20% 60% 60%
Food, Beverage, Tobacco 46 83 43 46
Textiles, Apparel, Vinyl Floor 67 17 67 50
Paper 67 17 67 54
Publishing 33 0 67 33
Chemicals 75 27 67 69
Petrolem Refining 86 31 57 43
Rubber & Plastic 67 33 67 33
Glass, Concrete, Abrasives 60 20 40 60
Metal Manufacturng 83 0 100 50
Metal Products Fabrication 60 0 25 75
Electric & Appliances 86 36 64 79
Shipbuilding, RR, Trans, Equip 100 33 33 0
Scientific & Photographic Equip 80 50 50 60
Motor Vehicles 50 0 50 50
Aerospace 100 75 75 100
Pharmaccuticals, Soap, Cosmetic 67 0 50 33
Office Equipment & Computers 100 0 80 100
Industrial & Farm Equipment 46 10 55 64
Number of Responses 145 138 143 143
Coefficient of Variation (CV) 28.2 96.7 29.6 49.6
1991 Composite 70.3 20.3 59.4 59.4
1991 Level of Chi-square Significance 0.16 0.207 0.83 0.46
1985 Composite 71.0 23.5 53.8 60.3
1980 Composite 61.7 NA 10.1 56

14. 0
10
20
30
40
50
60
70
80
90
100
ARR Pay back NPV IRR NPV or IRR
Capital Budgeting Techniques(%)
1980
1985
1991

15. Exhibit 3. Analysis of Capital Budgeting Techniques (Percentage of Firms by Industry
Indicating “Frequent” Use of Various Techniques)
Industry Average ROR Payback NPV(DCF) IRR 1991 NPV or IRR 1991
Mining, Crude Oil Production 50 75 100 100 100
Food, Baverage, Tobacco 62 71 86 70 93
Textiels, Apparel, Vinyl Floor 60 83 83 33 83
Paper 58 75 83 92 92
Publishing 43 75 100 100 100
Chemicals 63 77 88 88 88
Petrolem Refining 36 50 86 93 100
Rabber & Plastic 67 67 100 100 100
Glass, Concrete, Abrasives 40 60 80 100 100
Metal Manufacturng 0 50 88 88 88
Metal Products Fabrication 40 60 100 100 100
Electric & Appliances 43 50 86 79 86
Shipbuilding, RR, Trans, Equip 25 25 25 25 25
Scientific & Photographic
Equipment 80 60 100 100 100
Motor Vehicles 0 33 50 67 67
Aerospace 75 100 75 100 100
Pharmaccuticals, Soap, Cosmetic 50 67 100 67 100
Office Equipment & Computers 20 40 50 60 80
Industrial & Farm Equipment 36 82 91 82 100
Number of Responses 144 150 150 150 151
Coefficient of Variation (CV) 50 29.7 24.7 28 20.3
1991 Composite 45.8 63.3 84.7 81.8 90.7
1991 Level of Chi-square
Significance 0.27 0.55 0.082 0.018 0.016
1985 Composite 59.3 75.9 82.8 79.6 89.5
1980 composite 59.1 79.9 68.1 66.4 86.2

16. 24.4
13.1
51
32.2
18.2
52
Input Price Output Price Foreign Exhange
Future Markets(%)
1985 1991

17. Exhibit 4. Use of Future Markets for Risk Hedging (Percentage of Firms by
Industry Indicating "Frequent" Use of Various Techniques in 1991
Industry Raw Material Output Prices Foreign Exchange
Mining, Crude Oil Production 20 40 40
Food, Beverage, Tobacco 54 30 46
Textiles, Apparel, Vinyl Floor 33 0 50
Paper 17 8 33
Publishing 0 0 45
Chemicals 44 25 59
Petrolem Refining 79 64 50
Rabber & Plastic 0 0 67
Glass, Concrete, Abrasives 0 0 40
Metal Manufacturng 13 0 13
Metal Products Fabrication 40 25 40
Electric & Appliances 36 14 71
Shipbuilding, RR, Trans, Equipment 25 0 50
Scientific & Photographic Equipment 0 0 80
Motor Vehicles 40 0 17
Aerospace 50 0 75
Pharmaccuticals, Soap, Cosmetic 20 20 67
Office Equipment & Computers 20 20 60
Industrial & Farm Equipment 20 10 82
Number of Responses 146 143 150
Coefficient of Variation (CV) 79 130.2 37.6
1991 Composite 32.2 18.2 52
1991 Level of Chi-square Significance 0.019 0.008 0.3
1985 Composite 24.4 13.1 51

18. 0
50
100
Expected
Return Variance of
Return Correlation of
Return
88.7
21.2
44.7
82.4
21.4
42.9
1985 1991
Project Evaluation(%)

19. Exhibit 5. Analytical Techniques Used in Project (Percentage of firms by Industry Indicating "Frequent" Use
Industry Raw Material Output Prices Foreign Exchange
Mining, Crude Oil Production 100 40 50
Food, Beverage, Tobacco 71 15 39
Textiles, Apparel, Vinyl Floor 100 0 67
Paper 75 17 58
Publishing 100 17 33
Chemicals 82 33 40
Petrolem Refining 92 42 25
Rubber & Plastic 67 67 67
Glass, Concrete, Abrasives 60 0 0
Metal Manufacturng 86 17 43
Metal Products Fabrication 80 20 60
Electric & Appliances 71 43 50
Shipbuilding, RR, Trans, Equipment 100 25 50
Scientific & Photographic Equipment 100 20 80
Motor Vehicles 80 30 40
Aerospace 100 0
Pharmaccuticals, Soap, Cosmetic 67 0 60
Office Equipment & Computers 80 0 0
Industrial & Farm Equipment 82 0 27
Number of Responses 148 140 140
Coefficient of Variation (CV) 16 94.3 47.7
1991 Composite 82.4 21.4 42.9
1991 Level of Chi-square Significance 0.75 0.196 0.48
1985 Composite 88.7 21.2 44.7

20. Conclusions
More sophisticated financial techniques has increased rapidly over the past
twenty years.
More than 90% of large U.S. corporations now regularly use either NPV or
IRR techniques.
Only 3% of their sample measured covariance of projects returns.
Almost 44% of the firms report the use of covariance analysis.
Over 50% of the firm use the futures market to hedge foreign exchange
risk.
More specifically, the six financial techniques utilized by at least 80% of
the Fortunes 500 are projected cash budgets, sources and uses of funds,
NPV, IRR, projected expected return, and sale forecasting models.

21. Most widely used financial techniques relate to the financial forecasting
and capital budgeting process.
But, less sophisticated techniques, such as average rate of return and
payback period have continued to decline its importance.
Similarly, various specialized techniques, such as security portfolio
models are less commonly used.
The use of futures market as a means of controlling both borrowing
costs and raw material prices is increased.
The aerospace industry consistently appears to employ a wide range
of sophisticated financial analysis techniques.
On the contrary, the shipbuilding, railroad, and transportation
equipment industry is consistently below average.

22. So, this survey suggests that the modern analytical models and techniques
being taught in school and colleges are widely being adopted by large U.S.
corporations.
The various analytical techniques designed and adopted by large
corporations will definitely improve corporate profitability and will better
prepare these companies to cope up with economic downturns.