Derivative Contracts: operation and impact on the Cash Flow Statement

Derivative products take this name due to the fact that their value "Drift" the future performance of the value of an underlying asset. These are highly complex financial products characterized by the ability to magnify gains or losses, given the leverage inherent in these contracts. These tools are mainly used to pursue three different types of purposes:

  • reduce financial risk of a pre-existing portfolio;
  • take on risk exposures on financial quantities in order to make a profit;
  • achieve a risk-free profit through combined transactions on the derivative and the underlying such as to capture any valuation differences.

Furthermore, derivative contracts they can be traded on regulated markets (the so-called listed derivatives) or in the so-called market "Over the counter" or an unregulated market where direct counterparties enter into contracts therefore named “OTC derivatives”. In this second type of market lie the problems of greater complexity: if, in fact, the value (the so-called fair value or mark to market) of a listed derivative can be easily inferred from the market, the value of an OTC derivative must be estimated and , following the reform of the financial statements following decree 139/2015, correctly represented also in the financial statements of joint-stock companies that adopt the national accounting standards.

  • How they represent themselves derivatives in company financial statements?
  • How theirs works accounting?
  • How to infer the effects of the same on corporate cash flows?
  • How to analyze the overall impacts what do they have in a company's balance sheet?

These are some of the questions addressed in this webinar.

Alessandro FISCHETTI - Leanus Administrator
Ivan LEAF - Executive Partner at Finance



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