The most important role for derivatives is for risk management, and an important issue in risk management is defining its goals. The theoretical financial literature strongly recommends focusing on cash flows or on the value of the company. A focus on accounting numbers is generally discarded. However, the results in Table 2 reveal that managers are also concerned with accounting numbers and use earnings and/or balance sheet accounts (especially equity) as objectives in risk management. quick cash payday loans online

The responses to the primary goal of using derivatives in risk management are different for US and German firms. A relative majority of US companies (48.6%) focus their use of derivatives in risk management primarily on minimizing the variability in cash flow with minimizing variability in accounting earnings (44.0%) coming in a close second. However, only 5.5% of the US companies think of minimizing the variability of accounting earnings as not being an important hedging objective.
A striking absolute majority (55.3%) of German companies chose minimizing variability in accounting earnings as their most important objective of risk management using derivatives. Another 7.4% placed managing balance sheet accounts first as a hedging objective. Minimizing volatility in cash flows is the most important goal for only a third of German derivative users. However, another 19.1% of the German firms claim that the cash flow objective is not important for their risk management programs using derivatives.
The use of derivatives to minimize the variation in the market value of the firm (the present discounted value of the stream of future cash flows), which is often stressed in the theoretical finance literature, is not a goal shared by most firms. Managing the volatility of firm value is a primary objective of risk management with derivatives for only a small number of US and German companies (8.3% and. 11.7% respectively).