What company and industry have you selected, and what are some of the risks that the company and industry are facing in the current economic and political environment? You need to research risks from current financial publications (e.g., Bloomberg, The Financial Times, The Economist). Note: For this assignment, a current publication is no older than four years. Quote your source.Has the company addressed these risks? If yes, how? If not, what should they have done?Is another competitor on the market facing the same risks, and how did they address them? Briefly summarize.What are the impacts of ratios analysis on shareholders’ opinions about the company?What information can management draw from ratio analysis and comparisons to industry and competitors?What are some of the risks companies face in today’s markets?
I have selected Baker Hughes, a GE company (BHGE) which is part of the oil and gas field services industry and is a part of the New York Stock Exchange. BHGE operates globally to provide services, equipment, products, and digital solutions to various companies in each segment of the oil and gas sector. These segments include upstream which is designated for exploration and production, midstream which involves the movement and storage of crude oil and natural gas, and downstream which is where the final products are made. Many companies in the oil and gas field services industry are impacted by similar political, economic, environmental, and social issues that also affect the oil and gas industry, but there also a few risk factors that impact BHGE alone currently. Some of these risk factors include strategic, operational, financial, and legal and compliance risks which are discussed in the Form 10-K that is filed with the SEC annually. Since BHGE conducts business in over 180 countries, geopolitics and the global economy can greatly impact the success of the company.
Each country has varying local and regional economic environments and regulations that impact “interest rates, monetary policy, inflation, recession, currency volatility, currency controls or other limitations on the ability to expatriate cash and actual or anticipated default on sovereign debt” (Baker Hughes, a GE company, 2019, p. 106). BHGE addresses these risks in the financial statement via a hedge using derivatives. In addition to local and regional regulations, war and political disruption can impact the company’s finance. Power struggles in the Middle East impact the supply and demand of oil, which in turns impacts the oil and gas service industry. In 2014, when OPEC removed regulations on crude oil production, the industry saw a rapid over supply of oil leading to one of the worst downturns in the industry since the 1980s, causing all companies in the industry, such as BHGE, to respond by reducing capital expenditure by 40% globally, laying off over 400,000employees, delaying or cancelling major projects, and between 2015 and 2018, 167 companies had filed for bankruptcy equaling $58.5 billion in aggregate debt (Branson, Biscardini, Morrison,& Maestro, 2017).
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