Statistics and Risk
Management
Fiscal Stability
Performance Objective:
After completing this lesson, the student will understand what events can affect
the stability of business entities.
Approximate Time:
When taught as written, this lesson should take 4-5 days to complete.
Specific Objectives:
 The student will discuss how change imposes risk on businesses.
 The student will discuss the importance anticipating and managing change.
 The student will understand the different types of ownership changes that
can occur and the risks associated with each.
This lesson corresponds with Unit 10 of the Statistics and
Risk Management Scope and Sequence. Copyright © Texas Education Agency, 2012. All rights reserved. 1 TEKS Correlations:
This lesson, as published, correlates to the following
TEKS for Regression. Any changes/alterations to
the activities may result in the elimination of any or
all of the TEKS listed.
130.169(C)(4)
(R) analyze ownership change transactions, including:
(i) comparing mergers and acquisitions;
(ii) explaining the nature of hostile takeovers;
(iii) discussing issues that arise from mergers and acquisitions;
(iv) explaining methods for evaluating potential merger/acquisition targets;
(v) evaluating potential merger and acquisition targets; and
(vi) analyzing the nature of restructurings.
130.169(C)(5)
(A) manage risk to protect business stability
(i) analyzing the relationship between risk management and business finance;
(ii) discussing the nature of risk measurement;
(iii) measuring risk;
(iv) explaining the nature of interest rate risk;
(v) managing interest rate risk;
(vi) explaining approaches to financial risk management;
(vii) discussing the use of derivatives in financial risk management;
(viii) evaluating the risks of derivatives;
(ix) explaining reasons to integrate risk management into business operations;
(x) identifying business risks; and
(xi) integrating risk management into business operations; and
InterdisciplinaryTEKS:
English:
110.31 (C) (21) (B)
… organize information gathered from multiple sources to create a variety of
graphics and forms (e.g., notes, learning logs)…
110.31 (C) (22) (B)
…evaluate the relevance of information to the topic and determine the reliability,
validity, and accuracy of sources (including Internet sources) by examining their
authority and objectivity…
110.31 (C) (23) (C)
… use graphics and illustrations to help explain concepts where appropriate…
Copyright © Texas Education Agency, 2012. All rights reserved. 2 110.31 (C) (23) (D)
… use a variety of evaluative tools (e.g., self-made
rubrics, peer reviews, teacher and expert evaluations)
to examine the quality of the research…
Math:
111.36 (C) (4) (A)
… compare theoretical and empirical probability;
111.37. (C) (3) (B)
… use probabilities to make and justify decisions about risks in everyday
life
Occupational Correlation
(O*Net - http://www.onetonline.org/)
Financial Analyst 13-2051.00
Similar Job Titles: Securities Analyst, Investment Analyst, Credit Product
Officers
Tasks:



Draw charts and graphs, using computer spreadsheets, to illustrate
technical reports.
Inform investment decisions by analyzing financial information to forecast
business, industry, or economic conditions.
Monitor developments in the fields of industrial technology, business,
finance, and economic theory.
(Soft) Skills:
Deductive reasoning; Written comprehension; Reading Comprehension;
Originality
Copyright © Texas Education Agency, 2012. All rights reserved. 3 Instructional Aids:
1. Display for presentation, websites for
assignments and class discussion
2. Assignment Worksheets
3. Supporting Spreadsheets
Materials Needed:
1. Printer paper
2. Assignments and website information ready to distribute to
students.
Student projects will be displayed to increase interest in Statistics
Equipment Needed:
1. Computer with presentation and Internet Access
2. Computers for Students to Conduct Research and Collect Data
for Projects
Copyright © Texas Education Agency, 2012. All rights reserved. 4 References:
Business Ownership Types
You may operate your business or organization under any one of several
organizational structures. Each type of structure has certain advantages and
disadvantages that should be considered. The descriptions of the structures
below are provided to assist applicants and are not intended to be legal
definitions with the force of law. You should contact an attorney, accountant,
financial advisor, banker, or other business or legal advisors to determine which
form is most suitable for your business or organization.
Read more at http://www.sos.wa.gov/corps/registration_structures.aspx
http://www.sos.wa.gov/corps/registration_structures.aspx
Anticipation Change: Staying Current with Your Business Plan
This podcast by the Small Business Administration discusses the importance of
anticipation and planning for change as a part of running a successful business.
The types of changes discussed include revenue, disasters, succession
strategy, and successful growth.
http://www.sba.gov/content/anticipating-change-staying-current-with-yourbusiness-plan
Leading and Managing Change
This article discusses the simple and often forgotten rules of leading and
managing a change within a business. It provides an easy step by step process
for managing business changes.
http://gbr.pepperdine.edu/2010/08/leading-and-managing-change/
Copyright © Texas Education Agency, 2012. All rights reserved. 5 Teacher Preparation:
Teacher will:
1.
presentation, and
handouts.
2.
resources and websites.
3.
websites ready.
Review terms in outline,
Locate and evaluate various
Have assignments and
Learner Preparation:
It is time to wrap up what the students have learned about
statistics. You will briefly describe commercial software for
statistics with examples the student might find interesting. Then
the student will get to apply what they have learned to analyzing
data.
Introduction:
STUDENTS will watch the Unit video found here:
jukebox.esc13.net/untdeveloper/Videos/Fiscal%20Stability.mov
STUDENTS will take the practice test and review using the Key,
found in Common/Student Documents.
EXHIBIT:
Excitement for discovering the types of risk within
businesses.
INTRODUCE: Risk as a business changes.
ASK:
Ask students to talk about a local business that
changed hands, and to name the changes that
occurred.
Copyright © Texas Education Agency, 2012. All rights reserved. 6 I. Understanding Fiscal Stability
A. Change = Instability
1. Change in Market
2. Aging Customer Base
3. Change in Expenses
4. Energy Prices
5. Change in Technology
6. Computers
7. Example
In 1998/1999 computer consulting
firms grew at an alarming rate.
The US imported foreign nationals
to meet the demand.
The year 2001 many consulting
firms closed and many
programmers were unemployed.
8. Anticipate Change
Stay current with Government 9.
Rules and Regulations
Stay current with Industry Issues
and Practices
9. Participate in the Company
Culture
10. Read Individuals’ Attitudes
Example
There once was a video store on
every corner.
Now there may be one video store
in every town and its days are
numbered.
Why???
11. Embrace Change
12. The skill is to promote the
attitude of seeing if change will
benefit the organization.
13. Manage Change
14. Gather Data
15. Analyze data
16. Present findings to decision
makers
Use 14.1_
UnderstandingFiscalStabity
17. Follow up on implications of
any decisions or lack of.
a. Financing Risks
b. Financing can be risky for an
organization.
c. Exposure can be
unpredictable.
Copyright © Texas Education Agency, 2012. All rights reserved. 7 Example
Floating Interest Loan for
Plant refitting at bargain
rates.
Federal Reserves wanted to
slow Inflation. Plant closed
three years later.
Why???
B. Financial Derivatives
1. Financial derivatives should be
considered for inclusion in any
organization's risk-control
arsenal.
2. Financial instrument whose
payoff depends on another
financial instrument.
a. Example
An Airline wanted to hedge
their rising fuel costs. They
purchased huge Derivative
Contracts. Fuel prices dropped,
they went broke.
Why???
C. Are Financial Derivatives a form
of Gambling?
So, only Gamble which you
can afford to lose.
Provide Assignment sheets and discuss
and answer any questions about
assignment (In class or take homeInstructor’s Option)
Use files:
14.1a_
UnderstandingFiscalStabity
II. Understanding Ownership Changes
A. Restructuring
1. Restructuring is often tied to
Bankruptcies
2. Assets are protected from Creditors
3. Debt is discharged or repayment
renegotiated
4. Management teams are changed
5. Steps
a. Secure enough liquidity to operate
during restructuring.
b. Produce accurate working capital
forecasts.
Copyright © Texas Education Agency, 2012. All rights reserved. 8 c. Provide open & clear lines of
communication with creditors
who control the company's ability
to raise financing.
d. Update detailed business plan
and considerations.
B. Acquisitions
1. Acquiring Organization will
look for an opportunity to
purchase the assets, expertise,
products, clients, and markets
they want for expansion.
2. Leveraged Buy Outs
3. Acquiring Organization will
Finance its purchase of the
controlling interest of stock.
4. Loans often secured against
company assets.
5.Often challenged in Bankruptcy
court.
6. Stock Swaps
a. Acquiring company uses its
own stock to pay for the acquired
company.
7. Hostile Takeovers
a. Hostile Takeovers mean the
acquired company does not want
to be acquired.
b. However, if they are a
publically traded corporation and
the acquiring company can
afford to buy most its stock new
ownership is inevitable
c. Sometime a Poison Pill strategy
is used Hostile Takeovers are
not all bad
Provide Assignment sheets and discuss
and answer any questions about
assignment (In class or take homeInstructor’s Option)
Use files:
14.2a_
UnderstandingOwnershipCha
nges
Copyright © Texas Education Agency, 2012. All rights reserved. 9 Guided Practice:
See assignments.
Independent Practice:
Review document “Spreadsheets for Statistical
Purposes” – in Common Documents.
See assignments.
Review:
Question:
Describe working forecast
capital.
Question:
How do acquisitions work in a
company that wants to expand?
Informal Assessment:
Instructor should observe student discussion and monitor interaction.
Formal Assessment:
Completion of provided assignments using included keys for grading.
Copyright © Texas Education Agency, 2012. All rights reserved. 10 Student Assignment
14.1a Understanding Fiscal Stability
Key
Name: ____________________
You have heard of the Mortgage Crisis of recent times, how did
mortgage derivatives contribute to the crisis?
Explain what a mortgage backed derivative is and why its use or over
use caused the Mortgage Melt-down.
Answers will vary per student, but look that they have made an effort to
fulfill the requirements of this assignment any various levels. You may
ask yourself does this student demonstrate the ability to research and
apply what they have learned about the Mortgage Crisis by forming an
educated opinion.
Copyright © Texas Education Agency, 2012. All rights reserved. 11 Student Assignment
14.2a Understanding Ownership
Changes Key
Name: ____________________
The Oil industry has a been a hot bed of acquisitions/mergers
Exxon and Mobil
Amoco, British Petroleum,
ARCO
Conoco and Phillips
Chevron and Texaco
Pick one of these four groups and see what you can find out about when,
how, and why they merged.
Did these mergers need government approval?
Overall, what does the literature say about these mergers and the price
of Gasoline?
Answers will vary per student, but look that they have made an effort to
fulfill the requirements of this assignment any various levels. You may
ask yourself does this student demonstrate the ability to research and
form an opinion on free-markets, competition, and antitrust issues.
Copyright © Texas Education Agency, 2012. All rights reserved. 12 Fiscal Stability Project
Research a famous merger, acquisition, or hostile takeover. Prepare a visual and oral presentation with
solutions to the questions that follow.
Use your CREATIVITY and expertise to provide as much information as possible.
You should have at least one slide per item.
1. Provide an overview of the merger.
Include date/timeline of merger and companies involved.
Explain the type of merger.
2. Provide background/details about each company prior to the merger.
Include type of business, sales, target market.
3. List the competition.
Give specific company names of companies who were competitors before and after the merger. Did the
competition change? If so, explain.
4. Provide details of the financial agreement of the merger.
Include terms of contract.
5. Provide reasons for the merger.
Why did the companies merge?
6. List the benefits of the merger. List the risks of the merger.
What benefits did the companies see from merging?
What risks did the companies incur from merging?
7. Explain changes made to the companies after the merger.
Include changes in product, target market, customer base, personnel, etc.
8. Create two charts reflecting data from the merger.
You choose which data and which type of chart.
9. Do you think that the merger was successful?
Explain in detail why or why not.
 Be creative and provide details.
 This will count as two test grades…slideshow and presentation.
 Your slideshow will be graded based on details provided and creativity in your presentation.
 Your presentation to the class will be graded based upon your knowledge and professionalism.
 Refer to the rubric.
Copyright © Texas Education Agency, 2012. All rights reserved. 13 Grading Rubric _____(5)Organization (logical sequence of slides): _____(5)Visuals/Graphics (relevant, size appropriate): _____(5)Mechanics (grammar, spelling, capitalization): _____(5)Backgrounds (relevant, don’t distract from writing): _____(6)Creativity _____(8)Overview of Merger _____(8)Background/Details About Each Company Prior To The Merger _____(8)Competition _____(8)Details of the Financial Agreements in the Merger _____(8)Reasons for the Merger _____(8)Benefits and Risks of the Merger _____(8)Changes Made to the Companies after the Merger _____(10)Charts Reflecting Data from the Merger _____(8)Do You Think that the Merger was Successful? _____Slideshow Test Grade _____(100)Presentation Test Grade Copyright © Texas Education Agency, 2012. All rights reserved. 14