Ricoh 2007 Annual Report Download - page 28

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Key Financial Ratios
We have provided the following ratios to facilitate analysis of the
Company's operations for fiscal years 2005, 2006, and 2007.
Market Risk
MARKET RISK EXPOSURE
Ricoh is exposed to market risks primarily from changes in foreign
currency exchange rates and interest rates, which affect outstanding
debt and certain assets and liabilities denominated in foreign
currencies. To a lesser extent, Ricoh is also exposed to equity price risk.
In order to manage these risks that arise in the normal course of
business, Ricoh enters into various hedging transactions pursuant to its
policies and procedures covering such areas as counterparty exposure
and hedging practices. Ricoh does not hold or issue derivative
financial instruments for trading purposes or to generate income.
Ricoh regularly assesses these market risks based on the policies and
procedures established to protect against adverse effects of these risks
and other potential exposures, primarily by reference to the market
value of the financial instruments. As a result of the latest assessment,
Ricoh does not anticipate any material losses in these areas for fiscal
year 2007, and there are no material quantitative changes in market
risk exposure at March 31,2007. In the normal course of business,
Ricoh also faces risks that are either non-financial or nonquantifiable.
Such risks principally include credit risk and legal risk, and are not
represented in the tables.
FOREIGN CURRENCY RISK
In the ordinary course of business, Ricoh uses foreign exchange forward
contracts to manage the effects of foreign currency exchange risk on
monetary assets and liabilities denominated in foreign currencies. The
contracts with respect to the operating activities generally have
maturities of less than six months, while the contracts with respect to
the financing activities have the same maturities as the underlying
assets and liabilities.
The table provides information about Ricoh's material derivative
financial instruments that are sensitive to foreign currency exchange
rates. The table relating to foreign exchange forward contracts presents
the notional amounts, weighted average exchange rates and estimated
fair value. These notional amounts generally are used to calculate the
contractual payments to be exchanged under the contracts.
INTEREST RATE RISK
In the ordinary course of business, Ricoh enters into interest rate swap
agreements to reduce interest rate risk and to modify the interest rate
characteristics of its outstanding debt. These agreements primarily
involve the exchange of fixed and floating rate interest payments over
the life of the agreement without the exchange of the underlying
principal amounts.
The table provides information about Ricoh's major derivative and
other financial instruments that are sensitive to changes in interest
rates, including interest rate swaps and debt obligations. For debt
obligations, the table presents principal cash flows by expected maturity
date, related weighted average interest rates and estimated fair value.
For interest rate swaps, the table presents notional amounts by expected
maturity date, weighted average interest rates and estimated fair value.
Notional amounts are generally used to calculate the contractual
payments to be exchanged under the contract.
27 ANNUAL REPORT 2007
FOREIGN EXCHANGE FORWARD CONTRACTS
Millions of Yen Thousand of U.S. Dollars
Average contractual Contract Estimated Contract Estimated
rates amounts fair value amounts fair value
US$/¥ 116.22 ¥10,344 ¥ 128 $87,661 $1,085
EUR/¥ 155.54 8,710 (76) 73,814 (644)
US$/EUR 0.75 7,806 (71) 66,153 (602)
2005 2006
2007
Return on sales 4.6% 5.1%
5.4%
Return on shareholders’
investment 10.0% 10.6%
11.0%
Current ratio 1.53 1.53
1.63
Debt-to-equity ratio
(interest-bearing debt to
shareholders’ investment) 0.48 0.40
0.39
Interest coverage 28.5 28.9
24.5
*As a result of the sale of a business, the operating results from the discontinued operations
have been reclassified in accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".